UC-NRLF 


il 


173 


GIFT  OF 
Allen  Knight 


A    MANUAL 


OF 


PARTNERSHIP    RELATIONS  ' 

TREATING   OF   THE 

Nature,  Formation,  Operation  and    Dissolution 
of  the  Partnership,  with  the  Forms  used 
Therein,  and  a  Comparative  Con- 
sideration of  the  Partnership 
and    the    Corporation 


h 


BY 

THOMAS    CONYNGTON 
OF  THE  NEW  YORK  BAR 

Author  of  "  Corporate  Management,"  "  Corporate  Organization,"  etc. 


From 

ACCOUNTANCY   PUBLISHING    CO., 

PUBLISHERS  and  BOOKSELLERS 
32  Waverly  Place,  New  York. 


: 
fc 


COPYRIGHT  1905 

BY 
THE  RONALD  PRESS  COMPANY 


PREFACE. 


While  the  corporation  is  the  approved  form  of  modern 
business  organization,  the  great  majority  of  business  enter- 
prises are  still  conducted  as  partnerships.  For  this  reason  no 
apology  is  needed  for  the  presentation  of  a  compact  and  prac- 
tical work  on  partnership  relations. 

In  the  present  volume  are  considered  the  nature  of  the 
partnership,  the  method  by  which  it  is  entered  into,  the  man- 
ner of  its  operation  and  the  details  of  its  dissolution;  also  the 
relative  merits  of  the  partnership  and  the  corporation,  and 
the  practical  considerations  and  procedure  involved  in  chang- 
ing from  one  to  the  other. 

The  various  forms  incident  to  the  organization,  operation 
and  dissolution  of  the  partnership  are  also  given.  These  are 
mainly  from  existing  instruments  and  may  be  followed  with 
confidence. 

In  the  preparation  of  this  work  the  fact  has  been  con- 
stantly kept  in  view  that  difficulties  may  be  best  avoided  by 
a  clear  comprehension  of  those  particular  points  in  connec- 
tion with  which  they  are  most  liable  to  arise.  The  usual 
incidents  and  possible  dangers  of  the  partnership  relation,  as 
well  as  the  powers,  duties  and  liabilities  of  the  partners  are 
therefore  treated  with  special  care. 


in 


380368 


IV  PREFACE. 


The  scope  of  the  work  does  not  call  for  exhaustive  cita- 
tions. Those  given  have  been  carefully  selected,  and  indicate 
the  principal  authorities  on  each  important  point. 

It  is  hoped  that  the  forms,  citations,  arrangement  and 
careful  indexing  of  the  present  work  may  commend  it  to  the 
busy  practitioner  as  a  convenient  and  reliable  manual  of 

reference. 

THOMAS  CONYNGTON. 
170  BROADWAY,  NEW  YORK, 
November  i,  1905. 


TABLE  OF  CONTENTS. 


PART  I.— NATURE  OF  PARTNERSHIP  RELATIONS. 

Chapter  I.     Introductory. 

§     i.  Definition. 

2.  Necessary  Elements. 

3.  Distinctive  Features. 

4.  Associations  That  Are  Not  Partnerships. 

Chapter  II.     Classification. 

§     5.  Classification. 

6.  General  Partnerships. 

7.  Special    Partnerships. 

8.  Mining  Partnerships. 

9.  Limited  Partnerships. 
10.  Joint  Stock  Companies. 

Chapter  III.     Contrasted  Forms  of  Association. 

§  ii.  Associations  Not  for  Profit. 

12.  Partnership  Associations. 

13.  Statutory  Joint  Stock  Companies. 

14.  Corporations. 

15.  Co-ownership  and  Joint  Tenancy. 

Chapter  IV.     Profit  Sharing. 

§   16.  Profits   as   Compensation   for   Services. 

17.  Profits  as  Conpensation  for  Use  of  Property. 


VI  TABLE   OF   CONTENTS. 

18.  Profits  as  Compensation  for  Loan. 

19.  Contracts  for  Sharing  Profits. 

Chapter  V.     General  Considerations. 

.  §  20.  Partnership  a  Personal  Relation. 

21.  Personal   Qualifications. 

22.  Financial   Responsibility  and   Investment. 

PART  II.— ORGANIZATION. 
Chapter  VI.     Formation  of  Partnership. 

§  23.  By  Written  Contract. 

24.  By  Verbal  Contract. 

25.  By  Implied  Contract. 

26.  Laws  Regulating  Formation  of  Partnerships. 

27.  The  Firm  Name. 


Chapter  VII.     Parties. 


28.  Competency. 

29.  Minors. 

30.  Married   Women. 

31.  Aliens. 

32.  Insane  Persons. 

33.  Other  Firms. 

34.  Corporations. 


Chapter  VIII.     Relation  of  Partners  to  Firm. 


35.  General  Partners. 

36.  Special  Partners. 

37.  Dormant  Partners. 

38.  Nominal  Partners. 


PART  III.— CONDUCT  OF  BUSINESS. 
Chapter  IX.     The  Partnership  Property. 


§  39.  The  Partnership  Investment. 
40.  Partnership  Property. 


TABLE    OF    CONTENTS.  Vll 

41.  Firm   Name,   Goodwill,  Trademarks. 

42.  Nature  of  Partners'  Interests. 

43.  Partners'  Power  Over  the  Common  Property. 

44.  Real   Estate. 

45.  Attachment  and  Execution. 

Chapter  X.     Relations  of  Partners.  ( 

§.  46.  Powers  of  Partners. 

47.  Majority  Rule. 

48.  Mutual  Agency. 

49.  Contract  Limitations. 

50.  Arbitration  of  Differences. 

51.  The  Duty  of  Good  Faith. 

52.  The  Right  to   Engage  in   Other  Business. 

53.  Retirement  of  Partner. 

Chapter  XI.     Relations  to  Third  Persons. 

§  54.  Doctrine   of   Mutual   Agency. 

55.  Limits  of  Agency  Powers. 

56.  Limitation  in  Articles. 

57.  Partnership  Notes. 

58.  Purchase    and    Sale    of    Personal    Property. 

59.  Purchase  and  Sale  of  Real   Property. 

60.  Assignment  for  Benefit  of  Creditors. 

61.  Liability  to  Third   Persons. 

Chapter  XII.     Division  of  Profits. 

§  62.  Usual  Rule. 

63.  Contract  Stipulations. 

64.  Salaries  for  Services. 

65.  Interest  on  Investments. 

66.  Secret  Profits. 

67.  Right  to   an  Accounting. 

PART  IV.— TERMINATION. 
Chapter  XIII.    Dissolution  by  Agreement. 

§  68.  Introductory. 

69.  Expiration  of  Period. 


Vlll  TABLE   OF    CONTENTS. 

70.  Agreement  for  Dissolution. 

71.  Incorporation. 

Chapter  XIV.     Enforced  Dissolution. 

§  72.  By  Notice. 

73.  By  Sale  of  Partner's  Interest. 

74.  By  Bankruptcy. 

75.  By  Death  or  Insanity. 

76.  Failure  or  Impossibility  of  Enterprise. 

Chapter  XV.     Dissolution  Upon  Disagreement. 

§  77.  Introductory. 

78.  Breach  of  Articles. 

79.  Abandonment  by  One  Partner. 

80.  Exclusion  of  a  Partner. 

81.  Bad  Faith. 

82.  Misconduct  of  Partner. 

83.  Fraud  in  the  Inception  of  the  Partnership. 

84.  Dissensions. 


Chapter  XVI.     Equitable  Remedies. 


§  85.  Dissolution. 

86.  Injunction. 

87.  Receivership. 

88.  Accounting. 


Chapter  XVII.     Closing  Up  the  Business. 

89.  Different  Phases  of  Dissolution. 

90.  Surviving  and  Liquidating  Partners. 

91.  Existing  Contracts. 

92.  Sale  of  Assets. 

93.  Disposition  of  Firm  Name,  Good-will,  Etc. 

94.  Paying  Debts. 

95.  Marshalling  Assets. 

96.  Dividing  the  Remaining  Assets. 


TABLE    OF    CONTENTS.  IX 

PART  V.— INCORPORATION. 
Chapter  XVIII.     Partnership  Compared  With  Corporation. 

§  97.  Mutual  Agency  and  Corporate  Agency. 

98.  Comparative  Liability  Under  Each  System. 

99.  Advantage  of  the  Stock  Plan. 

100.  Management   of   Corporations. 

101.  Expenses   Incident  to   Incorporation. 

102.  Resume. 

Chapter  XIX.     Practical  Considerations. 

§  103.  Control  of  Corporations. 

104.  Protection  of  Minority   Interests. 

105.  Cumulative  Voting. 

106.  Voting  Trusts. 

107.  Provisions  Against  Selling  Stock. 

Chapter  XX.     Procedure  for  Incorporation. 

§   108.  Preliminary   Agreement. 

109.  The  Name, 

no.  Charter  Provisions. 

in.  By-Law  Provisions. 

112.  Organization  Meetings. 

113.  Transfer   of   Firm   Property. 

114.  Issuance  of  Stock  Certificates. 

115.  Conduct  of  Business. 

PART  VI.— FORMS  AND  PRECEDENTS. 

Chapter  XXI.     Articles  of  Copartnership. 

(Usual  Clauses.) 

Form. 

1.  Preamble,  Date,  Parties. 

2.  Firm  Name. 

3.  Place. 

4.  Purposes. 

5.  Investment. 


TABLE   OF   CONTENTS. 


Form. 

6.  Period. 

7.  Partnership  at  Will. 

8.  Division  of  Profits  and  Losses. 

9.  Salaries. 

10.  Payment  of  Private  Debts. 

11.  Engaging  in  Other  Businesses. 

12.  Termination. 


Chapter  XXII.    Articles  of  Copartnership. 
(Clauses  Relating  to  Conduct  of  Business.) 

Form. 

13.  Time  of  Partners. 

14.  Dormant  and  Silent  Partners. 

15.  Managing  Partner. 

16.  Signature  to  Commercial  Paper,  Etc. 

17.  Restrictions  on  Partners'  Powers. 

18.  Majority  Rule. 

19.  Books  to  be  Kept. 

20.  Periodical  Accounting. 

21.  Financial  Management. 

22.  Employees. 


Chapter  XXIII.    Articles  of  Copartnership. 
(Clauses  Relating  to  Dissolution.) 

Form. 

23.  Retirement  of   Partner. 

24.  Option  on  Partner's  Interest. 

25.  Power  of  Expulsion. 

26.  Insolvency  of  Partner. 

27.  Losses. 

28.  Death  of  Partner. 

(1)  Continuation  of  Investment. 

(2)  Life  Insurance. 

(3)  Option  to  Survivors. 

(4)  Allowance  for  Good-will. 

29.  Dissolution  by  Notice. 

30.  Winding  up  Partnership  Affairs. 


TABLE    OF    CONTENTS. 

Chapter  XXIV.    Articles  of  Copartnership. 
(Occasional  Clauses.) 


Form. 

31.  Arbitration  Clause. 

32.  Additional  Investments. 

33.  Loans  from  Partners. 

34.  Premium  for  Admission. 

35.  Guaranty  of  Profits  to  Partner. 

36.  Amendment  of  Articles. 


Chapter   XXV.    Articles   of  Copartnership. 
(Complete  Form.) 

Form. 

37.  Simple  Articles. 

38.  Articles  for   Mercantile   Business. 

39.  Articles  for  Contracting  Business. 

40.  Articles  for  Manufacturing  Business. 
„  41.  Professional  Partnership,  *^ 

42.  Married  Woman's  Partnership. 


Chapter  XXVI.    Partners'  Agreements. 

Form. 

43.  Agreement  Taking  in  New  Partner. 

44.  for  Dissolution.     Short   Form. 

45.  "     Dissolution. 

46.  Incorporation. 

47.  "     Continuance. 

Chapter  XXVII.     Profit  Sharing  Agreements. 

Form. 

48.  Agreement  to  Share  Profits  for  Services. 

49.  "    Share  Profits  for  Rent. 

50.  "  "    Share  Profits  for  Loan. 


Chapter  XXVIII.    Notices. 

Form. 

51.  Notice  of  Copartnership. 

52.  Admission  of  New  Member. 


Xll 


TABLE   OF    CONTENTS. 


53.  Notice  of  Withdrawal.  To  Copartners. 

54.  "  To  Firm  Connections 

55.  "         "  "  To  Public. 

56.  "         "    Dissolution. 


PARTNERSHIP   RELATIONS. 


PART  I.— NATURE  OF  PARTNERSHIP 
RELATIONS. 


CHAPTER  I. 
INTRODUCTORY. 


§  i.     Definition. 

Partnership  is  the  result  of  a  contract  between  two  or 
more  competent  parties  to  combine  their  money,  property, 
skill  or  labor  for  the  transaction  of  some  lawful  business  for 
profit.  1  The  contract  may  be  express  or  implied.  The  busi- 
ness must  be  lawful,  otherwise  the  law  would  not  recognize 
the  combination  as  a  partnership.  The  subject  matter  must 
be  some  undertaking  for  gain,  for  if  profit  were  not  the  object, 
the  association  would  not  be  a  partnership.  (See  §§  2,  4.) 

§  2.     Necessary  Elements. 

Relations  which  will  subject  the  parties  to  the  liabilities 
of  partners  are  easily  formed.  The  mere  representation  that 
they  are  partners,  or  their  passive  acquiescence  in  such  repre- 

1  For  further  definitions  see  i  Lindley  on  Partnership,  p.  i,  et  seq. ;  i  Bates 
on  Partnership,  §  i;  3  Kent's  Commentaries,  23;  also  N.  Y.  Laws  of  1897,  Ch.  420, 
§  2,  for  a  statutory  definition. 

13 


14  PARTNERSHIP   RELATIONS. 


sentations  by  others,  will,  as  to  third  parties,  suffice  to  estab- 
lish partnership  liabilities.  To  form  a  partnership  as  between 
the  parties  themselves  is  less  simple,  requiring  the  following 
essential  elements: 

1.  A  contract. 

2.  Parties  competent  to  contract. 

3.  Partnership  capital  or  property. 

4.  A  community  of  control. 

5.  A  lawful  business. 

6.  Profit  sharing  as  a  motive. 

Each  of  these  elements  must  ordinarily  be  present  to 
establish  a  partnership.  They  are  considered  briefly  in  the 
following  paragraphs. 

(i)  The  contract  may  be  written  or  verbal,  express  or 
implied.  It  may  have  been  entered  into  for  the  purpose  of 
establishing  partnership  relations,  or  with  the  expressed  in- 
tention of  avoiding  them.  The  intent  of  the  contract  is  gath- 
ered from  the  facts,  and  where  it  is  clear  that  the  contract 
involves  the  requisite  legal  essentials  the  courts  will  hold  the 
association  formed  thereunder  as  a  partnership,  even  though 
the  contract  expressly  stipulates  that  no  partnership  is  to  be 
formed.  2 

"To  determine  whether  the  relation  between  per- 
sons constitutes  a  partnership  their  intention  in  forming 
it  governs.  When  the  facts  are  given,  this  question  is 
one  of  law.  The  fact  that  the  contract  may  be  denomi- 
nated by  the  parties  a  partnership,  or  that  they  declare 
in  it  that  they  do  not  design  becoming  partners,  is  con- 
trolled by  the  nature  of  the  contract.  If  it  constitutes  a 

2  Parsons  on  Partnership,  §  54;  People  v.  Wiman,  85  Hun.  320  (1895);  Cen- 
tral City  Savings  Bank  v.  Walker,  66  N.  Y.  425  (1876);  Salter  v.  Ham,  31  N.  Y. 
321  (1865);  Kayser  v.  Maugham,  8  Colo.  236  (1885);  McFarlane  v.  McFarlane, 
82  Hun.  (N.  Y.)  238  (1894);  Heye  v.  Tilford,  2  App.  Div.  (N.  Y.)  346  (1896); 
Chapman  v.  Hughes,  154  Cal.  302  (1894);  Manhattan,  etc.,  Co.  v.  Sears,  45  N.  Y. 
497  (1871);  Jacobs  v.  Shorey,  48  N.  H.  100  (1868);  Cleveland  Co.  v.  Toy  Co., 
46  Conn.  136  (1878). 


INTRODUCTORY.  1 5 

partnership  it  is  one;  and  if  not,  not,  independent  of  the 
language  of  the  parties. 

"The  intention  of  the  parties  will  be  determined 
from  the  effect  of  the  whole  contract,  regardless  of 
special  expressions.  And  if  the  actual  relation  which 
the  parties  have  assumed  towards  each  other,  and  the 
rights  and  obligations  which  have  been  created  by  them, 
are  those  of  partners,  the  actual  intention  of  the  parties 
or  their  declared  purpose  can  not  suspend  the  conse- 
quences. And  so  if  the  parties  have  used  the  word  part- 
nership in  their  contract  and  called  themselves  partners, 
this  will  not  make  them  such  if  the  contract  is  not  con- 
sistent with  such  relation."  i  Bates  on  P.,  §  17.  (See 
also  §  19.) 

(2)  The  subject  of  the  competency  of  parties  is  con- 
sidered elsewhere  in  its  application  to  minors,  insane  persons, 
married  women,  aliens  and  corporations.      (See  Chap.  VII, 
Parties.) 

(3)  The  partnership  capital  may  consist  of  credit,  of 
property,  real  or  personal,  or  merely  of  the  time,  labor  and 
skill  of  the  respective  partners.     (See  Chap.  IX,  The  Part- 
nership Property.) 

(4)  Unless   expressly   stipulated   otherwise,   as   in   the 
case  of  dormant  and  special  partners,  each  member  of  a  part- 
nership has  an  equal  right  to  assist  in  the  management  of  the 
partnership  business  and  property,   and  has  equal  power  to 
contract  regarding  it.  3      (See  Chaps.   IX,  X.)     This  right, 
however,  may  be  restricted  by  agreement  among  the  partners. 

(5)  The  business  or  undertaking  must  be  lawful,  other- 
wise the  law  would  refuse  to  recognize  the  association  and  it 
could  not  therefore  come  under  the  rules  that  regulate  part- 
nership.    A  joint  agreement  to  conduct  a  lottery,  to  smuggle 
goods  or  to  infringe  patents  would  be  outside  the  pale  of  the 
law,  and  the  courts,  if  appealed  to  by  the  parties  to  such  an 
agreement,  would  leave  them  in  whatever  condition  it  found 

3Conklin    v.     Barton,    43    Barb.     (N.     Y.)     435     (1864). 


1 6  PARTNERSHIP   RELATIONS. 

them.  4  If  the  agreement  were  partly  for  legal  and  partly 
for  illegal  objects,  and  it  were  possible  to  separate  the  con- 
tract, the  courts  would  recognize  and  enforce  its  terms  as  far 
as  they  applied  to  legal  purposes.  5 

(6)  A  partnership  is  an  association  for  sharing  profits. 
If  any  association  has  not  this  object,  it  is  not  a  partnership. 
The  majority  of  clubs,  societies,  associations  and  organiza- 
tions are,  on  this  account,  excepted  from  the  operation  of  the 
rules  governing  partnerships.  (See  §  n.) 

§  3.     Distinctive  Features. 

In  addition  to  the  essential  elements  or  features  already 
enumerated,  or  as  a  consequence  of  them,  the  partnership  re- 
lation is  characterized  by  certain  distinctive  features. 

(1)  Each  partner  is  an  agent  for  the  others  in  the 
transaction  of  anything  within  the  scope  of  the  partnership 
purposes.    Hence,  any  contract  relating  to  the  proper  business 
of  the  firm  entered  into  on  its  account  by  any  one  of  the  part- 
ners is  binding  on  the  firm.     (See  §§  35,  37,  38;  also  Chap. 
XI,  Relations  to  Third  Persons.) 

(2)  Each  partner  shares  either  equally  or  in  agreed 
proportion  in  the  net  profits  of  the  business  and  usually  in  the 
losses  also.     (See  Chap.  XII,  Division  of  Profits.) 

(3)  In  case  of  insolvency  each  partner  is  personally 
liable  for  all  of  the  firm's  obligations.    This  is  the  most  oner- 
ous feature  of  the  partnership  relation.     (See  §§  61,  95.) 

(4)  The  property,  the  business,  firm  name,  good-will 
and  any  trade-marks  or  other  intangible  possessions  are  firm 
property  and  form  part  of  the  common  fund.     (See  Chap.  IX, 
The  Partnership  Property.) 

*  Watson  v.  Murray,  23  N.  J.  Eq.  257  (1872);  Tenny  v.  Foote,  95  111.  99 
(1880);  Hunter  v.  Pfeiffer,  108  Ind.  197  (1886);  Todd  v.  Rafferty,  30  N.  J.  Eq.  254 
(1878). 

6  Dunham  v.  Presby,  120  Mass.  285  (1876);  Anderson  v.  Powell,  44  Iowa  20 
(1876);  Read  v.  Smith,  60  Tex.  379  (1883);  Woodworth  v.  Burnett,  43  N.  Y.  273 
(1871). 


INTRODUCTORY.  17 

(5)  The  partnership  relation  is  a  purely  personal  one 
and  is  terminated  by  the  assignment  of  an  interest,  or  the 
death  or  retirement  of  a  partner.     A  new  member  can  not 
be  introduced  into  a  firm  unless  by  agreement  of  all  the  part- 
ners, and  then  the  resulting  association,  though  under  the  old 
name,  is  a  new  partnership.     Joint  stock  companies  and  min- 
ing partnerships  are  excepted  from  this  rule.     (See  §§8,  10, 
73>  75,  85.) 

(6)  A  partner  is  entitled  to  good  faith  and  fair  deal- 
ing from  his  associates,  and  on  dissolution  may  have  an  ac- 
counting to  ascertain  his  interests  in  the  business.     (See  §§  72- 
84. 

(7)  Unlike  a  corporation  the  partnership  has  no  entity 
distinct  from  its  membership.     It  can  not  sue  or  be  sued  in 
the  firm  name.     It  can  not  contract  with  or  bring  suit  against 
its  members,  nor  can  they  bring  suit  against  it.      (See  §  4, 
par.  4.) 

§  4.     Associations  that  are  Not  Partnerships. 

1 i )  Associations  not  formed  for  profit  are  not  partner- 
ships.    The  numerous  incorporated  clubs,  churches,  societies, 
associations  and  fraternal  organizations  are  not  partnerships 
and  do  not  involve  mutual  agency  nor  partnership  liability. 
They  are  governed,  moreover,  by  entirely  different  rules  from 
those  regulating  partnerships.     (See  §  n.) 

(2)  In  some  states,  business  organizations  designated 
as  partnership  associations  are  authorized.     These  are  neither 
partnerships   nor   corporations,   though   they  partake   of   the 
characteristics  of  both.     (See  §  12.) 

(3)  Statutory  joint  stock  companies  have  many  of  the 
features  of  the  partnership.     They  have,  however,  transfer- 
able stock,  so  that  the  death  of  a  member  or  the  sale  of  his 
interest  does  not  affect  the  organization;  also  they  are  au- 
thorized to  sue  and  be  sued  in  a  single  collective  name,  or  in 


1 8  PARTNERSHIP   RELATIONS. 

the  name  of  one  or  more  of  the  officers,  and  if  a  board  of 
managers  exists,  the  individual  members  can  not  contract  for 
the  company.  These  peculiarities  differentiate  such  compa- 
nies from  partnerships.  (See  §  13.) 

(4)  Corporations  differ  in  most  of  their  fundamental 
features  from  partnerships.     A  stockholder  in  a  corporation 
has  no  authority  to  contract;  is  not  in  most  states  liable  for 
anything  more  than  the  due  payment  for  his  shares;  the  rela- 
tion is  not  personal,  and  neither  his  death,  his  insolvency  nor 
the  assignment  of  his  interest  affects  the  corporation.     Also 
the  corporation  itself  has  an  entity  apart  from  its  stockholders, 
and  sues  and  is  sued  in  its  corporate  name.     More  than  this, 
it  can  sue  its  members  and  they  can  bring  suit  against  it,  with- 
out interfering  with  their  membership  relations.     (See  §  14.) 

(5)  The  law  does  not  imply  a  partnership  from  com- 
mon ownership  of  either  chattels  or  land.     Co-ownership,  or 
tenancy  in  common,  does  not  therefore  involve  any  partner- 
ship between  the  co-owners.     One  co-owner  could  readily  sell 
his  interest,  his  death  would  not  interfere  with  the  relation, 
nor  would  he  have  authority  to  bind  the  others  by  a  contract 
relating  to  the  common  property.     (See  §  15.) 

Joint  tenancy,  in  the  few  cases  where  it  exists,  is  also  en- 
tirely different  from  partnership,  involving  but  few  of  the 
features  of  this  latter  relation.  The  right  of  survivorship 
which  marks  joint  tenancy  has  no  place  in  the  law  of  partner- 
ship. 

(6)  Contracts  are  very  frequently  made  for  a  share  of 
profits  as  compensation  for  services,  for  the  use  of  property, 
or  for  the  loan  of  money.     This  does  not  necessarily  form  a 
partnership.     In  some  cases  of  this  kind,  however,  it  is  diffi- 
cult to  draw  the  line,  and  determine  the  status  of  the  parties. 
(See  Chapter  IV,  Profit  Sharing.) 


CHAPTER  II. 
CLASSIFICATION. 


§  5.     Classification. 

Partnerships  may  be  roughly  divided  into  two  classes, 
general  and  special.  While  this  classification  covers  the  ma- 
jority of  cases,  there  are  a  few  forms  involving  peculiarities 
of  partnership  law,  such  as  mining  partnerships,  limited  part- 
nerships and  joint  stock  companies  that  require  separate  dis- 
cussion. (See  §§  8-10.) 

§  6.     General  Partnerships. 

A  general  partnership  is  the  usual  partnership  formed 
for  the  continued  prosecution  of  some  general  line  of  busi- 
ness. 1  It  is  the  commonest  form  of  partnership.  General 
partnerships  may  be  either  trading  or  non-trading. 

Trading  partnerships  include  all  those  formed  for  the 
purpose  of  buying,  selling  and  manufacturing. 

Non-trading  partnerships  do  not  buy,  sell  or  manufac- 
ture as  a  principal  feature  of  their  business. 

"The  test  of  the  character  of  the 'partnership  is  buying 
and  selling.  If  it  buys  and  sells  it  is  commercial  or  trading."  2 
The  importance  of  this  distinction  lies  in  the  power  that  the 
individual  partners  of  trading  firms  have  to  borrow  money 
and  to  issue  negotiable  paper  on  behalf  of  the  firm.  In  busi- 

*i  Lindley  on  Partnership,  p.  49;  i  Bates  on  Partnership,  §  12;  George  on 
P.  §  28. 

8  Lee  v.   Bank,  45   Kan,   8    (1890),    u   L.   R.   A.   238. 

19 


2O  PARTNERSHIP   RELATIONS 

nesses  which  require  continuous  buying  and  selling,  it  is  neces- 
sary that  the  partners  should  have  this  power.  In  non-trading 
partnerships  it  would  not  be  necessary,  and  hence,  the  power 
is  not  allowed.  There  is,  however,  no  hard  and  fast  line  of 
demarcation  between  trading  and  non-trading  partnerships 
and  some  courts  have  shown  a  disposition  to  let  each  case 
stand  on  its  own  merits,  holding  that  if  the  scope  of  the  par- 
ticular business  required  borrowing,  the  partners  would  have 
power  to  so  act  for  the  firm. 

Partnerships  of  the  following  kinds  have  been  held  to  be 
non-trading  partnerships : 

All  professional  partnerships.  3 

Firms  of  brokers,  real  estate  and  insurance  agents.  4 

Mining  partnerships.  5     (See  §  8.) 

Farming  and  planting  partnerships.  G 

Special  partnerships.  7 

Generally  those  partnerships  wherein  there  would 
seem  no  reason  for  the  existence  of  the  power  to  borrow 
money  and  give  notes.  8 

§  7.     Special  Partnerships. 

A  special  partnership  is  formed  for  the  transaction  of 
some  single  piece  of  business,  9  or  for  the  conduct  of  some 

3  Smith  v.  Sloan,  37  Wis.  285  (1875);  Freind  v.  Duryee,  17  Fla.  in  (1879); 
Crossthwait  v.  Ross,  i  Humph.  (Tenn.)  23  (1839). 

*  Lee  v.   Bank,  supra;   n   L.   R.  A.  238,  note. 

5  Dickinson  v.   Valpy,    10   Barn.   &   Co.    128    (1829). 

6  Kimbro  v.    Bullitt,   63   N.    Y.    256    (1860);   Prince  v.    Crawford,    50   Miss.    344 
(1874);  Woodruff  v.   Scaife,  83  Ala.    152   (1887). 

7  Livingston   v.    Roosevelt,   4   Johns.    (N.    Y.)    251    (1809). 

8  See  ii   L.  R.  A.  238,  note;   Mechem  on  P.,  §    174,  and  cases  cited. 

°i  Lindley  on  P.,  p.  49;  Kayser  v.  Maugham,  8  Colo.  236  (1885);  Mum- 
ford  v.  Nicholl,  20  Johns.  (N.  Y.)  611  (1882);  Hubbell  v.  Buhler,  43  Hun.  (N.  Y.) 
82  (1887). 


CLASSIFICATION.  21 

one  line  of  business.10  It  is  sometimes  termed  a  particular 
partnership.  A  partnership  to  buy  and  sell  some  definite  piece 
of  land,  to  ship  a  cargo  to  some  particular  place,  to  buy  and 
operate  a  threshing  machine,  to  deal  in  specified  stocks,  or  to 
finance  and  sell  a  particular  patent  are  all  examples  of  special 
partnerships.  A  common  form  in  the  present  day  is  the  syn- 
dicate organized  for  the  promotion  or  financing  of  some  large 
corporate  enterprise. 

The  special  partnership  is  distinguished  from  the  general 
partnership  solely  by  its  more  limited  purpose.  The  authority 
of  the  partners  in  a  special  partnership  is  confined  to  its  specific 
undertaking,  and  third  persons  dealing  with  it  are  expected 
to  exercise  more  care  in  ascertaining  the  identity  of  the  part- 
ners and  the  limits  of  their  authority  than  when  dealing  with 
a  general  partnership.  Beyond  this,  the  distinction  between 
general  and  special  partnerships  is  of  little  importance,  as  the 
same  rules  govern  both.11  In  a  recent  case  it  was  said: 

"Whether  it  became  a  technical  partnership  as  a 
matter  of  law  or  whether  it  constituted  a  mere  joint  ven- 
ture is  not  of  consequence.  The  respective  interests  were 
settled.  Such  interests  were  placed  in  a  common  pool, 
to  be  used  and  disposed  of  for  the  benefit  of  all,  and  the 
legal  rules  applying  to  such  an  agreement  are  precisely 
the  same  as  are  those  which  apply  to  a  partnership  in 
technical  sense,  and  rights  are  to  be  enforced  upon  the 
same  principles."  Spier  v.  Hyde,  92  App.  Div.  467, 
N.  Y.  (1904). 

The  partnerships  discussed  in  the  remainder  of  this  chap- 
ter may  be  either  general  or  special,  according  to  the  circum- 
stances in  each  case.  Ordinarily  they  are  general. 

10  i  Lindley  on  P.,  p..  49;  Hesion  v.  Julian,  82  Ind.  576  (1882);  Sage  v.  Sher- 
man, 2  N.  Y.  417  (1849);  Marston  v.  Gould,  69  N.  Y.  220  (1877);  Manhattan,  etc., 
Co.  v.  Sears,  45  N.  Y.  797  (1871);  Newell  v.  Cochran,  41  Minn.  374  (1889);  Bur- 
gess v.  Badger,  124  111.  288  (1888). 

"King  v.    Barnes,    109   N.    Y.    267    (1888);   Marston   v.    Gould,   supra. 


22  PARTNERSHIP   RELATIONS. 

§  8.     Mining  Partnerships. 

These  form  a  class  to  themselves.  The  United  States 
Supreme  Court  said :  "Mining  partnerships,  as  distinct  asso- 
ciations with  different  rights  and  liabilities  attaching  to  their 
members  from  those  attaching  to  members  of  ordinary  trad- 
ing partnerships,  exist  in  all  mining  communities."  12  Under 
a  mining  partnership  the  co-owners  of  a  mine  may  work  it 
together  as  partners  in  the  profits  only,  the  mine  or  mines  be- 
ing owned  in  common,  but  not  held  to  be  partnership  prop- 
erty.13 This  allows  any  owner  to  sell  his  share  and  introduce 
a  new  member  without  dissolving  the  partnership.  Neither 
does  the  death  or  the  insolvency  of  a  partner  affect  the  part- 
nership. As  any  member  may  at  any  time  transfer  his  share 
and  bring  in  a  new  associate,  there  is  no  relation  of  trust  and 
confidence  between  them,  and  the  partners  have  no  right  to 
bind  their  fellows  by  contract. 

The  actual  mining  under  a  partnership  of  this  kind  is 
usually  conducted  by  a  superintendent  or  managing  partner 
appointed  by  the  mining  partners  or  associates.  But  even 
though  a  managing  partner  be  in  charge,  his  power  to  bind 
the  partnership  by  contract  is  very  limited.  He  can  only 
make  valid  contracts  for  such  supplies  and  labor  as  are  actually 
necessary  to  the  transaction  of  the  business,  and  he  can  not 
give  a  note  binding  the  partnership  unless  authority  to  do  so 
has  by  usage  or  express  grant  been  given  him.14 

An  ordinary  general  partnership  may  be  formed  for 
working  a  mine,15  but  as  a  rule  they  are  operated  under  min- 
ing partnerships. 

12Kahn  v.   Central   Smelting  Co.,   102  U.   S.   641    (1880). 

13Lindley  on  P.,  p.  55;  Reed  v.  Meaglier,  14  Colo.  335  (1890),  9  L.  R.  A.  455; 
Kahn  v.  Central  Smelting  Co.,  supra;  Bissell  v.  Foss,  114  U.  S.  252  (1885);  Harris 
v.  Lloyd,  ii  Mont.  390  (1891);  Kimberly  v.  Arms,  129  U.  S.  512  (1888). 

14  Charles  v.  Eshleman,  23  Cal.  199  (1863);  Settemore  v.  Putnam,  30  Cal. 
490  (1866);  Jones  v.  Clark,  42  Cal.  180  (1871);  Taylor  v.  Castle,  42  Cal.  367 
(1871);  Shaw  v.  McGregory,  105  Mass.  102  (1870). 

"Decker  v.   Howell,  42  Cal.   636   (1872). 


CLASSIFICATION.  23 

§  9.     Limited  Partnerships. 

A  limited  partnership  may  only  be  formed  under  special 
statutes.  It  differs  from  the  ordinary  partnership  in  that  cer- 
tain of  its  partners  are  silent,  or  inactive,  and  the  liability  of 
these  partners  is  limited  to  the  amount  actually  invested  by 
them.  (See  §  36,  Special  Partners.)  The  partners  whose 
liability  is  thus  limited  are  called  special  partners  in  contra- 
distinction to  the  other  general  partners.  (See  §  35,  General 
Partners.)  If  a  partner  whose  liability  is  thus  limited  takes 
active  part  in  the  conduct  of  the  partnership  business,  his 
status  changes  and  he  becomes  liable  as  a  general  partner. 

The  restricted  liability  enjoyed  by  the  special  partner  can 
be  secured  only  by  strict  compliance  with  the  statutory  direc- 
tions. The  usual  requisites  are  that  prescribed  notice  shall 
be  given  to  the  public  of  the  formation  and  nature  of  the 
partnership,  and  that  a  certificate  and  affidavit  of  the  limita- 
tions of  the  partnership  be  filed  in  some  office  of  public  reg- 
istry. The  certificate  must  give  the  names  and  addresses  of 
the  partners,  specifying  the  special  partners  and  the  amount 
invested  by  them,  with  the  other  essential  details  of  the  pro- 
posed partnership.  In  all  cases  the  local  statutes  should  be 
examined,  and  their  directions  followed  in  detail.16  Any 
variation  or  change,  then  or  thereafter,  may  make  the  partner- 
ship general.17  The  New  York  statutes  are  excellent  ex- 
amples of  the  usual  statutory  provisions.18 

16  Van  Ingen  v.  Whitman,  62  N.  Y.  513  (1875);  Durant  v.  Abendroth,  69 
N.  Y.  148  (1877);  Abendroth  v.  Van  Dolsen,  131  U.  S.  66  (1889);  White  v.  Eise- 
man,  134  N.  Y.  101  (1892);  Haddock  v.  Grinnell  Mfg.  Co.,  109  Pa.  St.  372  (1885); 
Briar  Hill  Co.  v.  Atlas  Works,  146  Pa.  St.  290  (1892);  Blumenthal  v.  Whitaker, 
170  Pa.  St.  309  (1895);  Smith  v.  Argall,  6  Hill  (N.  Y.)  479  (1844);  Manhattan  Co. 
v.  Laimbeer,  108  N.  Y.  578  (1888);  Vanhorne  v.  Corcoran,  127  Pa.  St.  255  (1889), 
4  L.  R.  A.  386. 

"Riper  v.  Popenhauser,  43  N.  Y.  68  (1870);  Bank  v.  Gould,  5  Hill  (N.  Y.) 
1309  (1843). 

"See  N.  Y.  Laws  of  1897,  Ch.  420,  Act  III,  Vol.  i,  p.  562.  See  generally 
Bates  on  Limited  Partnership. 


24  PARTNERSHIP   RELATIONS. 

§  10.    Joint  Stock  Companies. 

A  distinction  is  to  be  made  between  the  ordinary  joint 
stock  company  and  the  statutory  joint  stock  company.  (See 
§  13,  Statutory  Joint  Stock  Companies.)  The  ordinary  joint 
stock  company,  not  organized  under  any  statute,  though 
usually  adopting  a  corporate  name  and  having  some  of  the 
features  of  a  corporation,  is  merely  a  co-partnership,  and  the 
shareholders  are  responsible  for  the  debts  of  the  company  as 
in  an  ordinary  partnership.19  In  an  early  Massachusetts  case, 
the  court  said: 

"The  originators  of  this  scheme  have  endeavored 
to  avail  themselves  of  the  advantages  of  incorporation, 
under  an  association  of  partners.  As  between  retiring 
members  and  creditors  of  the  company,  the  attempt  is 
unsuccessful ;  such  members  remain  liable  for  all  exist- 
ing debts,  and  they  may  be  liable  for  subsequent  debts 
to  creditors  who  had  knowledge  of  their  partnership,  but 
had  not  had  a  notice  of  their  withdrawal."  Tyrell  v. 
Washburn,  6  Allen  466. 

An  important  difference  between  such  an  organization 
and  an  ordinary  partnership  is  that  its  members,  under  the 
terms  of  the  general  agreement,  may  transfer  their  interests 
without  dissolution  of  the  firm.  In  this  respect  joint  stock 
companies  resemble  mining  partnerships.  Also,  if  there  are 
many  members,  affairs  are  usually  managed  by  a  board  of 
trustees  or  managers,  and  the  individual  members  have  no 
authority  to  act  in  the  company  affairs.  Such  managers, 
within  the  scope  of  their  authority,  have  all  the  power  to  bind 
the  company  that  partners  have  to  bind  the  firm.20  The  sub- 

19Taft  v.  Warde,  106  Mass.  518  (1871);  Railway  v.  Pearson,  128  Mass.  445 
(1880);  Hodgson  v.  Baldwin,  65  111.  532  (1872);  Holt  v.  Blake,  47  Me.  62  (1859); 
Frost  v.  Walker,  60  Me.  468  (1872);  Kramer  v.  Arthur,  7  Pa.  St.  165  (1847). 

80  Van  Aernam  v.    Bleistem,    102   N.   Y.    355    (1886). 


CLASSIFICATION.  2$ 

ject  of  joint  stock  companies  is  of  little  present  importance, 
as  such  companies  are  now  rarely  organized,  their  objects 
being  more  simply,  safely  and  better  attained  by  the  corpora- 
tion. (See  Part  V,  Incorporation.) 


CHAPTER  III. 
CONTRASTED  FORMS  OF  ASSOCIATION. 

§11.     Associations  Not  for  Profit. 

The  sharing  of  profits  is  one  of  the  necessary  elements  of 
partnership.  Justice  Lindley  writes,  ''Nothing,  perhaps,  can 
be  said  to  be  absolutely  essential  to  the  existence  of  a  partner- 
ship except  a  community  of  interest  in  profits  resulting  from 
an  agreement  to  share  them."  Hence,  any  association  that 
has  not  the  sharing  of  profits  for  its  object  is  not  a  partner- 
ship.1 Clubs,  lodges,  committees,  societies  and  associations 
of  many  kinds  exist  and  may  have  a  common  fund  and  own 
property,  but  so  long  as  they  do  not  share  profits  they  are 
not  partnerships,  and  their  members  are  not  subject  to  the 
onerous  liability  of  partners.2  To  quote  from  Justice  Lindley 
again,  "No  partnership  or  quasi  partnership  subsists  between 
persons  who  do  not  share  either  profit  or  loss,  and  who  do 
not  hold  themselves  out  as  partners.  Societies  and  clubs,  the 
object  of  which  is  not  to  share  profits,  are  not  partnerships, 
nor  are  their  members  as  such  liable  for  each  others'  acts." 

This  distinction  is  clearly  shown  in  the  cases  of  co-opera- 
tive societies  which  buy  goods  and  distribute  them  among 
their  members.  If  the  purpose  of  such  an  association  does 
not  involve  making  a  profit,  it  is  not  a  partnership.  If,  how- 

1  Lindley   on    P.,    pp.    7,    50;    3    Kent's    Comm.,    23;    Niblack    on    Voluntary    So- 
cieties,   §§    80,   81,    82. 

2  Ostrom  v.   Greene,   161   N.   Y.   353    (1900);   LaFond  v.   Deems,   81    N.   Y.    507 
(1880);   Austin  v.   Thompson,  45   N.   H.    113    (1863);   In  re   St.   James  Club,   13   Eng. 
L.  &  Eq.    589    (1852). 

26 


CONTRASTED    FORMS    OF    ASSOCIATION.  .       27 

ever,  in  addition  to  supplying  its  members  at  cost,  it  sells 
goods  to  non-members  at  an  advance  over  cost,  thus  making 
a  profit,  it  thereby  becomes  a  partnership,  and  all  its  members 
are  subject  to  the  usual  partnership  liability  for  its  obliga- 
tions.3 

In  such  unincorporated  associations,  the  rights  of  the 
members  in  the  common  fund  are  analogous  to  the  rights  of 
partners.  In  a  case  where  such  an  association  was  involved, 
the  Court  of  Appeals  of  New  York  said : 

"While  it  was  neither  a  corporation  nor  co-part- 
nership, in  order  to  pass  upon  its  rights  and  powers  as 
well  as  those  of  its  members,  both  the  law  of  corporations 
and  the  law  of  co-partnerships  are  to  be  resorted  to  in 
the  absence  of  statutory  regulations,  the  choice  being 
determined  by  the  nature  of  the  feature  under  consider- 
ation." 4 

Such  associations  have  the  right  to  make  their  own  rules 
which  must  be  observed.5  Beyond  these  the  common  parlia- 
mentary rules  as  generally  used  by  deliberative  bodies  would 
govern  their  proceedings. 

Their  members  and  officers  can  only  be  held  for  such 
contracts  and  obligations  as  they  have  voted  for,  assented  to, 
or  authorized.  For  these  they  are  personally  responsible.6 

§  12.     Partnership  Associations. 

Under  the  laws  of  Pennsylvania  and  Michigan,  certain 
anomalous  associations  for  business  purposes  may  be  or- 
ganized under  the  name  of  partnership  associations.7  They 

3  Hodgson  v.  Baldwin,  66  111.  532  (1872);  Tenney  v.  Union,  37  Vt.  64  (1864); 
Farmuns  v.  Patch,  60  N.  H.  294  (1880);  see  also  Magovern  v.  Robertson,  116  N.  Y. 
61  (1889). 

*  Ostrom   v.    Greene,    161    N.    Y.    361    (1900). 

BLaFond  v.  Deems,  81  N.  Y.  507  (1880);  Carter  v.  Producers'  Oil  Co.,  182 
Pa.  St.  ssi  (1897). 

6  Ray   v.    Powers,    134   Mass.    22    (1883);    Heath   v.    Goslin,   80   Mo.    310    (1883); 
Ash   v.   Guie,   97   Pa.    St.   493    (1881). 

7  Act  of  June  2,   1874,  P.  L.  271;  2  Compiled  Laws  of  Michigan,  Ch.   160. 


28  PARTNERSHIP   RELATIONS. 

may  be  formed  for  any  of  the  purposes  for  which  ordinary 
business  corporations  may  be  organized  and  the  formalities 
of  organization  are  much  the  same. 

Stock  may  be  issued,  by-laws  passed,  a  seal  may  be 
adopted  and  in  the  home  state  they  may  sue  and  be  sued 
under  the  association  name.  The  word  "limited"  must  be 
appended  to  the  association  name.  In  Pennsylvania,  a  trans- 
feree of  stock  must  be  elected  by  his  associates  before  he  be- 
comes entitled  to  participate  in  the  management.8 

In  Michigan  the  courts  hold  that  these  organizations  are 
to  be  considered  corporations  rather  than  limited  partner- 
ships.9 

In  Pennsylvania  the  courts  variously  say  that  a  partner- 
ship association  is  a  "quasi  corporation,"  that  it  is  "sui  gen- 
eris/' that  it  is  inaccurately  called  a  " joint  stock  company," 
and  "that  while  assimilated  in  some  respects  to  a  corporation, 
it  is  nevertheless  essentially  a  partnership."  10 

In  Massachusetts  these  organizations  are  held  to  be 
merely  common  law  joint  stock  companies  and  are  treated 
as  partnerships.11  The  Supreme  Court  of  the  United  States 
held  that  they  were  not  corporations  for  purposes  of  federal 
jurisdiction,12  though  the  circuit  court  of  appeals  had  pre- 
viously held  the  contrary  view.13 

It  is  only  certain  that  in  event  of  litigation,  the  status  of 
these  associations  outside  of  the  state  that  created  them  is 
very  dubious. 


8  Laflin   &   Rand  v.    Steytler,    146   Pa.    St.   434    (1892). 

8  Staver,   etc.,    Co.   v.    Blake,    in    Mich.    282    (1896);    Rouse,   Hazard   &   Co.    v. 
Detroit    Cycle    Co.,    in    Mich.    251    (1896). 

10  Carter   v.    Producers'   Oil   Co.,    182   Pa.    St.    551    (1897);    Id.    200   Pa.    St.    579 
(1901). 

11  Edwards  v.   Linoline  Works,    168   Mass.    564    (1897). 

12  Great  Southern,  etc.,  Co.  v.  Jones,   177  U.   S.  449   (1900). 

"Andrews    Bros.    Co.    v.    Youngstown    Coke    Co.,    Limited,    86    Fed.    Rep.    585 
(1898). 


CONTRASTED    FORMS    OF    ASSOCIATION.  2Q 

§  13.     Statutory  Joint  Stock  Companies. 

The  common  law  joint  stock  company  has  already  been 
considered.  (§  10.)  The  statutory  joint  stock  company  is  a 
different  organization  created  by  special  enactment  and  like 
the  partnership  association  is  really  a  quasi  corporation.  New 
York  is  responsible  for  most  of  these  organizations  and  sev- 
eral of  the  largest  express  companies  of  the  country  are 
organized  as  joint  stock  companies  under  her  enactments. 
These  joint  stock  companies  have  in  the  home  state  virtually 
all  the  characteristics  of  corporations  with  the  exception  that 
their  members  are  subject  to  full  partnership  liability.14 

The  Supreme  Court  of  the  United  States  declined  to 
recognize  such  an  association  as  anything  more,  outside  of 
its  own  membership,  than  a  mere  partnership. 

"But  the  express  company  can  not  be  a  citizen  of 
New  York,  within  the  meaning  of  the  statutes  regulating 
jurisdiction,  unless  it  be  a  corporation.  The  allegation 
that  the  company  was  organized  under  the  laws  of  New 
York  is  not  an  allegation  that  it  is  a  corporation.  In  fact 
the  allegation  is,  that  the  company  is  not  a  corporation, 
but  a  joint  stock  company — that  is.  a  mere  partnership. 
And,  although  it  may  be  authorized  by  the  laws  of  the 
State  of  New  York  to  bring  suit  in  the  name  of  its  presi- 
dent, that  fact  can  not  give  the  company  power,  by  that 
name,  to  sue  in  a  federal  court."  15  Chapman  v.  Barney, 
129  U.  S.  677  (1889.) 

In  Massachusetts  the  same  general  doctrine  prevails.16 
The  Massachusetts  Courts,  however,  held  otherwise  in  regard 
to  an  English  joint  stock  company  on  the  question  of  taxing 
it  as  a  corporation.17  In  New  York  it  is  denied  that  they  are 

14  People  v.    Coleman,    133   N.    Y.    279    (1892). 

16  Gregg  v.    Sanford,   65   Fed.   Rep.    151    (1895). 

18  Taft  v.  Ward,  106  Mass.  518  (1871);  Lott  v.  Dinsmore,  in  Mass.  45  (1872); 
Boston  v.  Albany,  128  Mass.  445  (1880). 

17  Oliver  v.    Ins.    Co.,    100    Mass.    531    (1868);    Liverpool    Ins.    Co.   v.    Mass.,    10 
Wall.    566    (1870). 


3O  PARTNERSHIP   RELATIONS 

corporations  for  taxing  purposes,18  but  for  other  purposes 
they  are  held  to  have  the  privileges  of  corporations.19  Some 
other  states  have  accorded  these  organizations  certain  cor- 
porate rights.20  The  form  is  at  best  anomalous,  is  recognized 
in  but  few  states,  and  has  little  to  recommend  it. 

§  14.     Corporations. 

For  all  practical  business  purposes  there  are  but  two 
generally  recognized  forms  of  association,  the  common  law 
partnership  and  the  modern  business  corporation.  The  cor- 
poration differs  from  the  partnership  in  the  following  essen- 
tials :21 

1.  It  is  created  only  by  legislative  authority.     The 
foundation  is  its  charter  granted  by  the  state.22 

Partnership  is  simply  a  contract  between  the  members. 

2.  The  liability  of  the  members  of  a  corporation 
is  limited  to  their  investments.23 

Each  partner  is  liable  for  all  partnership  obligations. 

3.  The   capital   of   a   corporation   is   divided    into 
shares  represented  by  stock,  certificates,  transferable  by 
endorsement.24 

In  a  partnership  each  partner's  interest  is  so  merged  that 
it  can  be  divided  or  transferred  only  by  dissolution  of  the 
firm. 

18  People  v.  Wemple,  117  N.  Y.  136  (1889);  People  v.  Coleman,  133  N.  Y. 
279  (1892). 

19Westcott  v.   Fargo,  61   N.  Y.   542   (1875). 

20  Adams   Ex.    Co.   v.    State,   55    Ohio    St.    69    (1896);    Edgeworth   v.   Wood,    58 
N.   J.   L.   463    (1896). 

21  Clark  &  Marshall  on  Corp.,   §   20;   10  Cyc.    146,   148. 

22  Cook  on   Corp.,   §    i;   Clark  &   Marshall  on   Corp.,    §    37. 

23  Cook  on  Corp.,  §§  241,  242;  Clark  &  Marshall  on  Corp.,  §   16;  10  Cyc.   146. 

24  Cook  on   Corp.,   §§    n,   12;   Clark  &  Marshall  on  Corp.,   §§    15,   557   et  seq. ; 
10  Cyc.    146. 


CONTRASTED    FORMS    OF    ASSOCIATION.  3! 

4.  In  a  corporation,  the  stockholders  vote  in  pro- 
portion to  their  holdings,  for  directors,  who  alone  have 
authority    over    the    corporate    property    and    business. 
These  directors  appoint  officers  and  agents  to  transact 
the  business.     The  stockholders  as  individuals  have  no 
authority  or  power  in  the  corporate  affairs.25 

In  a  partnership,  each  partner  has  full  authority  to  do 
all  things  necessary  in  the  scope  of  the  partnership  business 
and  his  contracts  and  obligations  are  binding  on  his  asso- 
ciates. Each  partner  is  held  to  be  the  agent  of  all  the  others 
in  the  firm  business. 

5.  The   change,    death,    insanity   or   insolvency   of 
its  members   does  not  affect  the  permanence  and   con- 
tinuity of  the  corporate  organization.  26 

The  change,  death,  insanity  or  insolvency  of  a  partner 
causes  the  dissolution  or  re-organization  of  a  firm. 

6.  The  corporation  has  an  entity  separate  and  apart 
from  its  members.     It  can  sue  and  be  sued  in  the  cor- 
porate name.     It  can  sue  its  members  and  be  sued  by 
them.  2T 

The  partnership  has  no  separate  entity,  but  all  the  part- 
ners must  sue  and  be  sued  by  name;  neither  can  it  be  sued 
by  its  members  nor  bring  suit  against  one  or  more  of  them. 

As  a  consequence  of  these  differences,  it  follows  that  an 
entire  stranger  might  safely  invest  in  the  stock  of  a  corpora- 
tion, when  he  would  not  dream  of  entering  a  partnership 
formed  to  carry  on  a  similar  enterprise.  Also,  those  engaged 
in  a  corporate  undertaking  can  safely  receive  capital  from 
persons  whom  they  would  not  dream  of  receiving  as  partners, 
with  all  that  the  relation  implies.  As  a  rule  a  partnership 
can  rarely  secure  investments  except  from  those  whom  they 
are  prepared  to  receive  as  active  and  responsible  associates. 

25  Cook  on   Corp.,   §    u;    Clark  &   Marshall   on   Corp.,   §    652   et  seq. 

26  Cook   on    Corp.,    §    n;    Clark   &   Marshall   on    Corp.,    §    20;    10    Cyc.    146. 

27  Cook  on  Corp.,  §§   i,  n;  Clark  &  Marshall  on  Corp.,  §§   17,  20;   10  Cyc.   149. 


32  PARTNERSHIP   RELATIONS. 

As  has  been  seen  (see  §§  12,  13),  some  hybrid  forms  of 
partnership  adopt  certain  of  the  corporate  characteristics,  but 
the  usual  business  partnership  does  not.  If  the  corporate 
advantages  are  desired  or  if  any  variation  is  to  be  made  in 
the  partnership  form  it  would  seem  better  to  incorporate, 
rather  than  to  experiment  with  such  doubtful  variations  on 
the  partnership  form  as  the  joint  stock  company  (see  §  13), 
the  partnership  association  (see  §§  10,  12),  and  the  limited 
partnership  (see  §  37).  The  very  important  considerations 
involved  in  a  decision  between  the  partnership  and  the  cor- 
porate form  are  treated  more  at  length  in  Part  V  of  the  pres- 
ent work. 

§  15.     Co-Ownership  and  Joint  Tenancy. 

Neither  co-ownership  nor  joint  tenancy  necessarily  in- 
volves partnership.  Partnership  is  a  contract  relation,  and 
the  mere  fact  that  persons  are  mutually  interested  in  or  are 
part  owners  of  the  same  property  does  not  make  them  part- 
ners unless  they  have  so  determined.28  If  they  use  the  prop- 
erty together  for  profit  they  may  readily  make  themselves 
partners,29  and  cases  arise  where  it  is  difficult  to  decide 
whether  this  has  been  done  and  those  concerned  have  become 
partners,  subject  to  partnership  rules  and  liabilities,  or  whether 
they  are  still  merely  co-owners  or  joint  tenants.30 

As  a  general  rule,  however,  the  distinction  is  clear.  Co- 
ownership  need  not  arise  from  a  contract;  a  partnership  al- 
ways does.  One  co-owner  can  always  sell  his  interest  to  a 
stranger  without  interference  with  his  relations  to  other 
owners.  One  co-owner  is  not  the  agent  for  the  others  and 

2«  Story  on  P.,  §§  2,  3,  32;  Porter  v.  McClure,  15  Wend.  (N.  Y.)  187  (1833); 
Hawley  v.  Keeler,  53  N.  Y.  114  (1873);  Heye  v.  Tilford,  2  App.  Div.  (N.  Y.)  346, 
aff.  154  N.  Y.  787  (1897);  Bank  v.  Osborne,  159  Pa.  St.  10  (1893);  Millet  v.  Holt, 
60  Me.  169  (1872). 

^McFarlane  v.    McFarlane,   82   Hun.    (N.    Y.)    238    (1894). 
v.   Morse,    126   Mass.   480    (1879). 


CONTRASTED    FORMS    OF    ASSOCIATION.  33 

can  not  bind  them  by  his  contracts  in  relation  to  the  com- 
mon property.  A  co-owner  or  a  tenant  in  common  can  at 
any  time  have  partition  as  a  matter  of  right,  and  in  the  case 
of  personal  property  severable  in  its  nature,  one  co-owner 
may  simply  take  his  share.  In  a  partnership,  proceedings  in 
dissolution  would  be  necessary.  There  are  some  other  tech- 
nical differences  in  regard  to  the  legal  relations  existing  be- 
tween co-owners  and  partners.31 

Co-owners  can  share  gross  returns  without  becoming 
partners.32  If,  though,  the  returns  are  brought  into  a  com- 
mon fund,  from  which  expenses  are  paid  and  the  net  profits 
divided,  it  will  be  held  to  create  a  partnership.33 

The  case  of  tenants  in  common  of  a  mine  and  the  result- 
ing mining  partnership  with  its  peculiar  relationship  has  been 
considered.  (See  §  8.)  Other  special  cases  will  be  consid- 
ered under  other  heads. 

31  See   i    Lindley,   p.    51    et   seq. ;    Goell   v.    Morse,   supra. 

32  Quackenbosh    v.    Langer,    54    Cal.    439    (1880). 

33  i    Lindley   on   P.,   p.    53   et   seq. 


CHAPTER  IV. 
PROFIT   SHARING. 


§  16.     Profits  as  Compensation  for  Services. 

It  is  common  to  give  a  share  of  the  profits  of  a  business 
or  enterprise  as  compensation  for  the  services  of  those  who 
assist  in  its  promotion  or  operation.  A  clerk  may  be  em- 
ployed with  an  agreement  that,  in  addition  to  his  salary,  he  is 
to  receive  a  percentage  of  the  net  profits.  Or  a  broker  or  a 
lawyer  or  another  business  man  may  be  induced  to  assist  in 
an  enterprise  or  some  special  undertaking  for  a  share  of  its 
profits.  Ordinarily  those  who  share  the  profits  of  a  business 
are  liable  as  partners,  but  in  such  cases  where  there  is  no 
community  of  interest  in  the  partnership  funds,  where  the 
party  sought  to  be  charged  has  not  exercised  a  partner's  con- 
trol, and  where  the  share  of  profits  is  given  merely  as  com- 
pensation for  services,  the  person  receiving  it  is  not  a  partner 
and  is  .  not  subject  to  a  partner's  liability.1  In  regard  to 
cases  of  this  kind,  Justice  Clifford  said  : 

"Every  man  who  has  a  share  of  the  profits  of  a 
trade  or  business  ought  also  to  bear  his  share  of  the  loss, 
for  the  reason,  that  in  taking  a  part  of  the  profits,  he 
takes  a  part  of  the  fund  of  the  trade  on  which  the  creditor 
relies  for  payment.  (Grace  v.  Smith,  2  W.  Bl.  998; 

1  i  Bates  on  P.,  §  43  and  cases  cited;  Burkle  v.  Eckart,  i  Denio  (N.  Y.)  341 
(1845);  Lewis  v.  Grieder,  51  N.  Y.  231  (1872);  Sodiker  v.  Applegate,  24  W.  Va.  411 
(1884);  Berthold  v.  Goldsmith,  supra;  Brown  v.  Hicks,  24  Fed.  Rep.  811  (1885); 
Ambler  v.  Bradley,  6  Vt.  119  (1834);  see,  though,  Bromley  v.  Elliot,  38  N.  H.  287 
(1859);  Bancroft  v.  Hambley,  94  Fed.  Rep.  975  (1899);  Sangston  v.  Hack,  52  Mo. 


34 


PROFIT    SHARING.  35 

Waugh  v.  Carver,  2  H.  Bl.  235.)  Actual  partnership,  as 
between  a  creditor  and  the  dormant  partner,  is  consid- 
ered by  law  to  subsist  where  there  has  been  a  participa- 
tion in  the  profits,  although  the  participant  may  have 
expressly  stipulated  with  his  associates  against  all  the 
usual  incidents  to  that  relation.  (Bond  v.  Pittard,  3 
Mees.  &  W.  357.)  That  rule,  however,  has  no  relation 
whatever  to  a  case  of  service  or  special  agency,  where 
the  employee  has  no  power  as  partner  and  no  interest  in 
the  profits,  as  property,  but  is  simply  employed  as  a  ser- 
vant or  special  agent,  and  is  to  receive  a  given  sum  out 
of  the  profits,  or  a  proportion  of  the  same,  as  a  compen- 
sation for  his  services. 

''Merchants  are  obliged  to  have  clerks,  and  often- 
times find  it  necessary  to  employ  brokers  or  special 
agents  to  effect  sales,  and  it  is  no  more  detrimental  to 
their  creditors  that  such  employees  should  be  paid  out 
of  the  profits  of  their  trade  than  from  any  other  source 
of  income  within  their  disposal."  Berthold  v.  Goldsmith, 
65  U.  S.  536  (1860). 

(In  connection  with  this  subject  see  §  19  and  Form  51.) 

§  17.     Profits  as  Compensation  for  Use  of  Property. 

It  is  not  uncommon  to  arrange  to  give  a  proportion  of 
the  profits  of  a  business  in  lieu  of  rent  or  as  compensation  for 
the  use  of  property  employed  in  the  business.2  Such  an  ar- 
rangement when  bona  fide  and  not  really  intended  as  a  cover 
for  a  partnership  will  not  involve  the  owner  of  the  property 
in  a  partner's  liability.  It  has  been  held  that  a  railroad  may 
lease  a  hotel  owned  by  it,  for  half  the  net  profits  made  by  the 
lessee  without  thereby  becoming  a  partner.3  A  building  may 

*  i  Bates  on  P.,  §  45  and  cases  cited;  Wilson  Co.  v.  Bowker,  27  Abb.  N.  C. 
(N.  Y.)  153  (1891);  McDonnell  v.  Battle  House  Co.,  67  Ala.  90  (1880);  see,  though, 
Webster  v.  Clark,  34  Fla.  637  (1894),  27  L.  R.  A.  126;  Leavitt  v.  Windsor  Co., 
54  Fed.  Rep.  439  (1893). 

8  Holmes  v.  Old  Colony  Ry.,  5  Gray  58  (1855);  Beecher  v.  Bush,  45  Mich. 
188  (1881);  May  v.  Trust  Co.,  92  Fed.  Rep.  445  (1899);  Newell  v.  Cochran,  41 
Minn.  374  (1889). 


36  PARTNERSHIP   RELATIONS. 


be  rented  for  ^aluuif  purposes  for  a  share  in  the  profits  with- 
out making  the  lessor  a  partner  in  the  business.4  A  mill  may 
be  let  on  shares  without  making  the  owner  a  partner  in  its 
operation.5  In  all  such  cases,  the  ownership  of  the  property 
is  retained,  and  while  there  is  a  community  of  interest  in  the 
profits,  there  is  no  community  of  interest  in  the  business  nor 
in  the  property,  and  the  owner  of  the  property  would  have  no 
control  or  management  of  the  business.6 

If  in  any  particular  case,  the  owner  of  property  has  par- 
ticipated in  the  business,  or  has  so  turned  the  property  in  that 
there  is  a  community  of  interest  in  the  property  as  well  as  in 
the  profits,  the  resulting  relation  would  be  a  partnership  and 
the  parties  concerned  would  be  liable  for  its  obligations.  (See 
Form  51.) 

§  18.     Profits  as  Compensation  for  Loan. 

It  happens  occasionally  that  a  loan  is  made  for  the  pur- 
pose of  conducting  a  business  and  the  lender  is  given  a  share 
of  the  profits  of  the  business  in  which  the  money  is  being  used. 
Here  the  conditions  closely,  approximate  those  of  a  partner- 
ship, and  under  the  old  rule  which  prevailed  both  in  this  coun- 
try and  in  England  and  which  still  prevails  to  some  extent  in 
New  York  and  Pennsylvania,  such  an  arrangement  would 
have  been  held  to  constitute  a  partnership,  and  any  one  shar- 
ing profits  on  such  a  basis  would  also  have  been  held  liable 
for  losses.7  In  nearly  every  state  of  the  Union,  however,  such 
an  arrangement  made  in  good  faith  and  not  intended  to  con- 
ceal a  partnership  is  now  held  to  be  entirely  legitimate,  neither 

4  Thayer  v.  Augustine,  55  Mich.  187  (1884);  Oppenheimer  v.  Clemmons,  18 
Fed.  Rep.  886  (1883). 

6  Ambler  v.    Bradley,   6   Vt.    119    (1834). 

6  Webster  v.    Clark,   supra;   Wood   v.    Beath,   23    Wis.    254    (1868);    Berthold   v. 
Goldsmith,   65    U.    S.    536    (1860);    Dame   v.    Kempster,    146    Mass.    454    (1888). 

7  Grace  v.   Smith,  2  W.  Bl.  997   (1775);  Waugh  v.  Carver,  2  H.  Bl.  235   (1793); 
Leggett  v.   Hyde,   58  N.   Y.   272   (1874);   Hackett  v.    Stanley,   115   N.   Y.   625    (1889). 


PROFIT    SHARING.  37 

constituting  a  partnership  nor  involving  the  lender  in  part- 
nership liability.8 

It  was  said  by  Justice  Gray  in  Meehan  v.  Valentine,  cited 
below : 

"In  whatever  form  the  rule  is  expressed,  it  is  uni- 
versally held  that  an  agent  or  servant,  whose  compen- 
sation is  measured  by  a  certain  proportion  of  the  profits 
of  the  partnership  business,  is  not  thereby  made  a  part- 
ner, in  any  sense.  So  an  agreement  that  the  lessor  of 
a  hotel  shall  receive  a  certain  portion  of  the  profits  there- 
of by  way  of  rent  does  not  make  him  a  partner  with  the 
lessee.  *  *  * .  And  it  is  now  equally  well  settled  that 
the  receiving  of  part  of  the  profits  of  a  commercial  part- 
nership, in  lieu  of  or  in  addition  to  interest,  by  way  of 
compensation  for  a  loan  of  money,  has  of  itself  no  greater 
effect." 

As  has  been  stated,  the  old  rule  still  prevails  to  some 
extent  in  Pennsylvania  and  New  York.9  In  Pennsylvania  it 
has  been  modified  by  statute,  so  that  under  a  written  agree- 
ment money  may  be  loaned  for  a  share  of  the  profits  of  a 
business  without  making  the  lender  a  partner,  providing  the 
lender  does  not  hold  himself  out  as  a  partner.10  In  New  York 
the  courts  would  seem  to  have  practically  abrogated  the  rule 
in  all  those  cases  where  the  loan  was  made  in  good  faith  and 
not  with  partnership  intent.11 

It  may  be  said  that  in  order  to  loan  money  for  use  in  a 
business  and  receive  compensation  in  the  shape  of  a  share  of 

8  Cox  v.   Hickman,   8   H.   L.    C.    268    (1860);   Meehan  v.   Valentine,    145   U.    S. 
61 1    (1891),  36  L.   Ed.  and  note;   Cassidy  v.   Hall,  97  N.   Y.    159    (1884);   Richardson 
v.    Hughitt,    76    N.    Y.    55    (1881);    Smith    v.    Knight,    71    111.    148    (1873);    Jones    v. 
Walker,    103    U.    S.    444    (1881);    Boston    C.    S.    Co.    v.    Smith,    13    R.    I.    27    (1882); 
Salter  v.  Ham,  31   N.  Y.  321    (1865);   Curry  v.  Fowler,  87  N.  Y.  33   (1881). 

9  See    New   York   cases   cited    in   note   8;    Herrall    v.    Dobbins,    169    Pa.    St.    480 
(1895);   Wessels  v.   Weis,    166  Pa.    St.   490    (1895). 

10  Act   of  April   6,    1870,    P.    L.    56. 

11  See   New   York  cases   cited   in   note   7;   also   see   Waverly   Bank  v.    Hall,    150 
Pa.   St.  466   (1892),  for  a  discussion  of  the  New  York  decisions. 


38  PARTNERSHIP   RELATIONS. 

the  profits  without  thereby  becoming  a  member  of  the  firm, 
the  loan  must  be  made  in  good  faith,  the  lender  must  not  par- 
ticipate in  the  management  and  must  not  hold  himself  out 
as  a  partner.  The  repayment  of  the  loan  must  be  absolute  and 
not  contingent  on  profits.12  The  agreement  should  always 
be  in  writing  and  be  explicit  in  its  terms.  (See  Form  53.) 

§  19.     Contracts  for  Sharing  Profits. 

The  general  rule  that  it  is  wise  to  have  all  contracts  re- 
duced to  writing  becomes  doubly  imperative  in  the  case  of 
contracts  for  sharing  profits,  either  as  compensation  for  ser- 
vices, for  use  of  property,  or  for  money  loaned.  The  arrange- 
ment verges  so  nearly  on  a  partnership  that  it  is  unsafe  to 
trust  to  a  verbal  agreement,  which  may  be  too  easily  misun- 
derstood by  one  party  or  the  other. 

In  any  agreement  of  this  kind  the  contract  must  be 
drawn  with  great  care,  as  otherwise  it  may  happen  that  the 
resulting  arrangement  will  be  found  to  constitute  a  partner- 
ship, in  spite  of  the  fact  that  the  contracting  parties  may 
have  neither  wished  nor  intended  to  form  such  a  relation.13 
The  law  on  this  point  is  explicit.  As  Judge  Cooley  has  ex- 
pressed it: 

"It  is  nevertheless  possible  for  parties  to  intend  no 
partnership  and  yet  form  one.  If  they  agree  upon  an 
arrangement  which  is  a  partnership  in  fact,  it  is  of  no 
importance  that  they  call  it  something  else,  or  that  they 
even  expressly  declare  that  they  are  not  to  be  partners. 
The  law  must  declare  what  is  the  legal  import  of  their 
agreements  and  names  go  for  nothing  when  the  sub- 
stance of  the  arrangement  shows  them  to  be  inapplj- 
cable."  Beecher  v.  Bush,  45  Mich.  188  (1881). 

12  Richardson  v.  Hughitt,  76  N.  Y.  55  (1897);  Eager  v.  Crawford,  76  N.  Y.  97 
(1879);  Leggett  v.  Hyde,  58  N.  Y.  272  (1874). 

"Beecher  v.  Bush,  supra;  Leavitt  v.  Windsor  Co.,  54  Fed.  Rep.  439  (1893); 
Couch  v.  Woodruff,  63  Ala.  466  (1879). 


PROFIT    SHARING.  39 

In  all  cases  where  profits  are  taken  without  partnership 
intent,  it  is  prudent  to  specify  in  the  contract  that  the  party 
shall  receive  as  compensation  "an  amount  equal  to"  the  pro- 
posed share  of  profits.  This  phraseology  indicates  that  the 
person  does  not  take  a  share  of  the  profits  as  profits,  but  only 
takes  a  compensation  contingent  on  the  profits.  Also,  it  is 
prudent  to  specify  that  the  party  is  not  to  be  a  partner,  nor 
exercise  a  partner's  control,  nor  to  have  any  interest  in  the 
partnership  property,  nor  to  be  liable  for  any  losses.  (See 
Forms  51,  52,  53.)  If  money  is  loaned  provision  should  be 
made  for  the  return  of  the  capital  without  reference  to  profits. 
If  the  use  of  property  is  given,  the  title  of  the  property  should 
be  carefully  reserved  to  the  owner. 

In  dealing  with  this  question  it  is  to  be  emphasized  that 
as  to  third  parties  it  is  the  legal  intention  of  the  parties  rather 
than  their  expressed  or  declared  intention  which  controls.14 
As  between  the  parties  to  the  agreement,  however,  the  true 
rule  is  that  "the  agreement  and  intention  of  the  parties  them- 
selves should  govern  in  all  cases."  15 

If  in  any  of  the  cases  of  profit  sharing  discussed,  the 
agreement  is  made  for  a  share  of  the  "gross  returns,"  this 
wording  shows  conclusively  that  the  arrangement  is  not  a 
partnership.  The  usual  arrangement  for  renting  land  for  a 
share  in  kind  of  the  crops  raised  is  an  example  of  this  form 
of  contract,  and  neither  as  between  the  parties  themselves 
nor  as  to  third  persons  would  the  relation  be  one  of  part- 
nership.16 

"Mechem  on  P.,  §§  43,  44;  Leggett  v.  Hyde,  58  N.  Y.  272  (1874);  Man- 
hattan Brass  Co.  v.  Sears,  45  N.  Y.  797  (1871). 

15  Story  on  P.,  §§  i,  38,  39;  Stevens  v.  McKibbin,  68  Fed.  Rep.  406  (1895); 
also  New  York  cases  cited  in  note  14. 

10  George  on  P.,  §  18;  i  Bates  on  P.,  §  61;  Donnell  v.  Harshe,  67  Mo.  170 
(1877). 


CHAPTER  V. 
GENERAL  CONSIDERATIONS. 


§  20.     Partnership  a  Personal  Relation. 

While  a  knowledge  of  the  law  relating  to  the  rights, 
duties  and  liabilities  of  partners  is  of  great  importance,  it 
must  be  remembered  that  partnership  is  a  personal  relation, 
and  that  a  knowledge  of  the  character,  reputation  and  general 
responsibility  of  proposed  associates  is  even  more  important. 
It  is  a  singular  fact  that  not  infrequently  business  partner- 
ships are  formed  with  less  scrutiny  and  caution  than  a  guar- 
anty company  observes  in  bonding  a  messenger  boy. 

The  basic  features  of  the  partnership,  the  mutual  agency 
and  the  unlimited  liability  of  partners,  render  the  relation 
susceptible  of  grave  abuses.  A  partner  may  easily  withdraw 
or  misapply  partnership  funds.  Without  consulting  his  asso- 
ciates he  may  commit  the  partnership  to  contracts  and  under- 
takings. In  the  event  of  death,  the  winding  up  of  a  partner- 
ship business  is  in  the  hands  of  the  survivors.  In  short,  the 
relation  is  one  of  such  trust  that  partnership  should  be  entered 
into  only  with  men  worthy  of  the  confidence  which  must  un- 
avoidably be  reposed  in  them. 

§  21.     Personal  Qualifications. 

The  character  and  reputation  of  a  proposed  associate 
have  a  double  bearing  upon  his  fitness  as  a  partner.  He  is 
not  only  to  be  trusted  with  the  assets  and  business  of  the 
firm,  but  also  his  character  will,  if  good,  be  in  itself  a  firm 

40 


GENERAL    CONSIDERATIONS.  4! 

asset,  while  if  bad  it  will  be  a  hindrance  to  success.  The 
progress  of  a  new  firm  is  handicapped  from  the  start  if  one 
or  more  of  the  partners  have  already  become  unfavorably 
known.  On  the  other  hand,  and  more  particularly  in  pro- 
fessional partnerships,  the  reputation  of  its  partners  is  not 
infrequently  the  most  valuable  asset  of  a  prosperous  firm. 

Reasonably  accurate  information  as  to  the  character  of 
a  proposed  partner  may  be  obtained  from  the  commercial 
agencies,  and  from  his  previous  associates  and  history.  Such 
information  may  be  more  or  less  biassed,  and  even  if  favor- 
able may  not  be  sufficient  in  itself  to  justify  the  confidential 
relations  of  the  partnership.  If  unfavorable,  however,  it 
should  unquestionably  condemn  the  proposed  association. 

Such  skill  and  experience  as  one  partner  may  possess 
above  the  others  form  as  legitimate  an  investment  as  any 
other  kind  of  capital.  In  many  cases  these  are  taken  as  the 
full  equivalent  of  the  property  investments  of  other  members 
of  the  firm.  In  others,  they  are  regarded  as  a  partial  equiva- 
lent, and  in  still  others  are  recognized  by  a  special  salary  or 
percentage  of  profits.  It  must,  however,  be  remembered  that 
the  partnership  losses  must  fall  upon  the  tangible  assets  of 
the  firm,  and  that  the  partner  whose  investment  consists  of 
skill  and  experience  alone  may  emerge  with  his  skill  unim- 
paired and  his  experience  enlarged  from  a  disaster  which  has 
swept  away  the  fortunes  of  his  moneyed  companions.  This 
comparative  immunity  from  loss  is  peculiar  to  the  man  who 
makes  no  cash  contribution  to  the  capital,  and  in  arranging 
for  the  division  of  profits,  it  may  fairly  be  counted  as  a  de- 
duction from  the  value  of  his  investment. 

§  22.     Financial  Responsibility  and  Investment. 

The  financial  responsibility  of  a  partner  is  frequently 
as  important  an  asset  of  a  business  as  the  money  or  other 
tangible  property  actually  invested.  A  wealthy  member  may 


42  PARTNERSHIP   RELATIONS. 

put  into  a  firm  only  a  strictly  limited  amount  of  capital,  but 
since,  owing  to  the  unrestricted  liability  of  the  partnership 
relations,  he  is  responsible  for  all  its  debts,  it  is  evident  that 
the  extent  of  his  responsibility  has  an  important  bearing  on 
the  credit  of  the  new  firm.  Practically  his  entire  property  is 
behind  the  partnership  undertakings,  regardless  of  the  amount 
of  his  actual  investment.  On  the  other  hand,  if  a  partner's 
financial  responsibility  is  not  equal  to  that  of  his  associates, 
it  is  obvious  that  from  a  credit  standpoint  he  is  not  so  valu- 
able a  member  of  the  firm,  even  though  his  cash  investment 
may  be  the  same.  Also,  it  is  quite  possible  that  such  a  part- 
ner, having  less  at  stake,  might  be  willing  to  take  risks  with 
the  partnership  business  and  property  from  which  his  asso- 
ciates would  shrink.  For  both  these  reasons,  other  things 
being  equal,  the  desirability  of  a  prospective  partner  varies 
directly  as  his  financial  responsibility,  regardless  of  the  amount 
of  his  contemplated  investment. 

The  financial  standing  of  a  proposed  associate  is  readily 
ascertainable  from  the  commercial  agencies  and  from  the  local 
banks.  Where  the  difference  in  financial  responsibility  is 
material,  limited  partnership  may  be  advisable,  or  the  party 
of  lesser  means  may  be  restricted  in  his  power  to  bind  the 
firm. 

In  this  connection  it  is  to  be  noted  that  the  parties  mak- 
ing the  larger  investment,  or  possessing  the  greater  means, 
are  usually  on  vantage  ground  when  an  agreement  of  partner- 
ship is  being  made,  but  that  thereafter  the  other  parties  occupy 
the  better  position.  Having  less  at  stake  these  latter  may, 
unless  restrained,  cheerfully  involve  the  firm  in  risks  that 
their  wealthier  associates  will  be  very  unwilling  to  incur.  For 
this  reason  the  wealthier  parties  may  very  properly  and  wisely 
utilize  their  preliminary  advantage  of  position  to  insist  upon 
such  provisions  and  restrictions  in  the  partnership  agreement 
as  will  ensure  a  safe  administration  of  the  partnership  affairs. 


PART  II.— ORGANIZATION. 

CHAPTER  VI. 
FORMATION  OF  PARTNERSHIP. 

§  23.     By  Written  Contract. 

The  customary  and  the  only  proper  method  of  forming 
a  partnership  is  by  written  articles  of  partnership  signed  by 
all  the  parties.  These  articles  may  be  a  very  simple  memo- 
randum of  agreement,  or  they  may  be  expanded  into  elaborate 
articles  of  association,  providing  for  the  numerous  details 
and  possible  exigencies  of  an  extended  commercial  enter- 
prise. 

If  each  partner  is  to  put  in  the  same  amount  of  capital, 
to  give  his  entire  time  and  services,  and  the  losses  and  gains 
are  to  be  shared  equally,  a  brief  and  informal  memorandum 
is  sufficient.  If,  however,  the  partners  are  to  put  in  varying 
amounts;  if  profits  are  to  be  divided  unequally;  if  salaries 
are  to  be  given  or  interest  paid  on  excess  investments,  or  if 
options  of  purchase  or  withdrawal  are  to  be  given,  it  is  de- 
sirable that  full  and  explicit  articles  of  copartnership  be 
entered  into  by  the  parties. 

The  variations  which  may  be  made  on  the  usual  simple 
partnership  contract  are  innumerable,  and  a  statement  and 
careful  definition  of  these  at  the  beginning  will  often  save 
serious  trouble  later  on.  The  general  subject  will  be  found 
treated  at  length  in  Part  VI,  Forms  and  Precedents. 

43 


44  PARTNERSHIP   RELATIONS. 

§  24.     By  Verbal  Contract. 

In  spite  of  the  dangers  of  such  a  course,  partnerships 
are  frequently  formed  by  verbal  agreement.1  Sometimes  this 
is  meant  to  be  permanent.  More  frequently  it  is  intended  to 
be  merely  temporary,  the  parties  both  proposing  at  some  more 
convenient  season  to  draw  up  a  written  contract  in  due  form. 
The  same  objection  obtains  in  either  case — the  objection 
which  holds  against  all  verbal  arrangements — that  the  parties 
rarely  have  the  same  understanding  of  what  has  been  said, 
or  that  one  or  both  may  forget  details,  and  the  way  is  thus 
left  open  for  future  disagreements. 

Under  the  Statute  of  Frauds,  a  verbal  contract  of  part- 
nership to  last  more  than  a  year  is  not  valid.  If,  however, 
immediately  upon  making  the  contract,  the  parties  thereto 
enter  upon  its  performance,  a  partnership  at  will  is  thereby 
formed,  which  is  legal  and  is  governed  as  to  its  terms  by 
the  contract,  but  which  may  be  terminated  at  any  time  by 
either  party,  regardless  of  the  original  contract.2  It  must  be 
borne  in  mind,  however,  that  the  Statute  of  Frauds  does  not 
apply  to  verbal  contracts  made  for  any  period  under  a  year. 
Such  contracts  are  binding  for  the  specified  length  of  time, 
and  can  not  be  dissolved  at  will  without  incurring  a  liability 
for  damages. 

As  the  Statute  of  Frauds  also  provides  that  no  contract 
creating  an  estate  or  interest  in  real  property  shall  be  valid 
unless  in  writing,  it  has  been  thought  that  partnerships  to 
deal  in  real  estate  can  not  be  formed  by  verbal  contract.  The 
courts,  however,  have  held  otherwise,  and  when  such  con- 


*i  Lindley  on  P.,  p.  86;  i  Bates  on  P.,  §  281;.  Rumsey  v.  Briggs,  139  N. 
323  (1893);  Bank  v.  Galla^idet,  I2O/N.  Yv'298  (LJBgo);  Chester  v.  Dickerson, 
N.  Y.  i  (1863);  see  also  post  §  s'9  and  cases  cited;  Levi  v.  Kanick,  13  la.  , 


Lindley  on  P.,  p.   8/>;    i   Bates  on  P.,   §   281 /Rumsey  v.   Briggs,   139   N.   Y. 

54 
344 
(1862). 

2  Sanger   v.    French,    157    N.    Y.    213    (1898);    Wahl   v.    Barnum,    116    N.    Y.    87 
(1889). 


FORMATION    OF   PARTNERSHIP.  45 

tracts  are  for  a  period  less  than  a  year,  they  will  be  sustained.3 
The  New  York  Court  of  Appeals  in  a  leading  case  said : 

"But  suppose  two  persons,  by  parol  agreement,  enter 
into  a  partnership  to  speculate  in  lands,  how  do  they 
come  in  conflict  with  the  statute  of  frauds  ?  No  estate  or 
interest  in  land  has  been  granted,  assigned  or  declared. 
*  *  *  The  contract  is  a  valid  one,  and  in  pursuit  of 
this  agreement  they  go  on  and  buy,  improve  and  sell 
lands.  While  they  are  doing  this,  do  they  not  act  as 
partners  and  bear  a  partnership  relation  to  each  other? 
Within  the  meaning  of  the  statute  in  such  case  neither 
conveys  or  assigns  any  land  to  the  other,  and  hence  there 
is  no  conflict  with  the  statute.  *  *  *  This  is  not  a  con- 
troversy about  the  title  to  any  of  the  lands  taken  or 
owned  by  the  partners,  but  it  simply  relates  to  the  con- 
duct of  the  defendants  while  they  were  acting  as  part- 
ners; and  in  such  a  case  the  statute  of  frauds  certainly 
can  present  no  obstacle  to  relief."  Chester  v.  Dickerson, 
54  N.  Y.  9  (1873). 

§  25.     By  Implied  Contract. 

In  many  cases  of  partnership  there  is  neither  a  written 
nor  verbal  contract  which  can  be  proved,  but  the  parties  con- 
cerned, either  intentionally  or  unintentionally,  have  acted  as 
partners,  have  had  a  common  fund  in  which  they  exercised 
a  community  of  interest,  and  have  shared  profits  and  losses. 
Under  such  circumstances  they  will  be  held  to  be  partners, 
both  as  between  themselves  and  as  to  third  persons.4  An  ex- 
ample of  an  implied  partnership  is  found  in  the  case  of  Mc- 
Farlane v.  McFarlane,  cited  below.  In  this  case  the  Court 
said: 

8  Flower  v.  Barnskoff,  20  Oregon  127  (1890),  n  L.  R.  A.  149;  Meagher  v. 
Read,  14  Colo.  335  (1890),  9  L.  R.  A.  455;  Chester  v.  Dickerson,  supra;  Essex  v. 
Essex,  20  Beav.  442  (1855);  Dale  v.  Hamilton,  5  Hare  369  (1846). 

4  i  Lindley  on  P.,  p.  84;  McFarlane  v.  McFarlane,  82  Hun.  238  (1894); 
Jacobs  v.  Shorey,  48  N.  H.  TOO  (1868);  Emerson  v.  Durand,  64  Wis.  in  (1885). 


46  PARTNERSHIP  RELATIONS. 

"Although  it  does  not  appear  from  the  case  that 
there  was  any  specific  agreement,  either  oral  or  written, 
entered  into  between  them,  it  seems  to  me  that  from  the 
manner  that  they  received  the  real  estate  in  question, 
with  the  apparatus,  machinery  and  appliances  thereon, 
the  evident  intention  of  the  testator,  as  evidenced  by  the 
sixth  clause  of  his  will,  that  they  should  continue  the 
business  as  carried  on  by  him;  and  the  fact  that  they 
thereafter  carried  on  said  business  together,  dividing  the 
profits  thereof  equally  between  them,  constitutes  in  fact 
and  law  a  copartnership  as  completely  as  if  written  ar- 
ticles of  copartnership  between  them  had  been  signed." 

Another  application  of  the  same  principle  is  to  the  case 
of  parties  who  assume  to  be  incorporated  when  they  are  not.5 
It  does  not  apply  to  those  who  have  attempted  to  incorporate 
legally,  but  have  failed  in  some  point  of  procedure.  If  there 
are  existing  laws  under  which  a  lawful  incorporation  could 
be  had,  a  mere  technical  non-compliance  would  not  make 
them  liable  as  partners.6  They  would  be  a  de  facto  corpora- 
tion and  as  such  capable,  of  doing  business.  If,  however, 
there  were  no  existing  laws  under  which  they  could  have 
legally  incorporated,  the  going  through  the  form  of  incor- 
poration would  not  prevent  their  being  held  liable  as  partners. 
Even  in  this  last  case,  however,  anyone  who  had  dealt  with 
them  as  a  corporation  would  probably  be  held  estopped  to 
deny  the  corporate  existence.7 

§  26.     Laws  Regulating  Formation  of  Partnerships. 

Most  partnerships  are  formed  under  common  law  rules 
that  are  the  same  in  every  part  of  the  Union.  In  certain  of 

6  Eaton  v.  Walker,  76  Mich.  579  (1889),  6  L.  R.  A.  102;  Central  City  Bank 
v.  Walker,  66  N.  Y.  424  (1876);  i  Cook  on  Corp.,  §  236  and  cases  cited  in  notes. 

6  i    Cook   on   Corp.,    §    234   and   cases   cited;    Bank   v.   Landon,   45    N.    Y.    410 
(1871). 

7  2    Morawetz    on    Private    Corp.,    §    750;    Swartout   v.    Railroad    Co.,    24    Mich. 
389    (1872);   Bank  v.    Stone,   38   Mich.    779    (1878);   M.    E.   Ch.   v.    Pickett,   19   N.    Y. 
482   (1859);  Aspinwall  v.   Sachi,  57  N.   Y.  331    (1874);   Fuller  v.   Rowe,  57  N..Y.  23 
(1874). 


FORMATION    OF   PARTNERSHIP.  47 

the  Western  States,  however,  codes  of  partnership  law  have 
been  enacted  intended  to  regulate  general  partnerships.  These 
codes  are  practically  recitals  of  the  common  law  rules  relat- 
ing to  partnerships.  The  definitions,  the  rules  as  to  partner- 
ship property,  the  apportionment  of  losses  and  gains,  the 
rules  as  to  liabilities  and  dissolution  are  almost  exactly  a 
restatement  of  the  common  law  rules  given  in  this  work. 

Entirely  apart  from  these  general  partnership  codes, 
nearly  all  the  states  have  provided  for  the  organization  of 
partnerships  with  special,  silent  partners.  The  object  of  these 
laws  is  to  give  opportunity  for  those  who  desire  to  invest 
capital  in  a  partnership  without  taking  an  active  part  in  the 
business,  to  invest  and  at  the  same  time  limit  their  liability 
to  the  amount  so  invested. 

Such  partnerships  are  designated  "limited  partnerships" 
in  contradistinction  to  the  ordinary  partnership  in  which  the 
liability  of  the  partners  is  unlimited.  The  procedure  to  se- 
cure the  advantages  of  these  laws  must  be  closely  followed. 
The  subject  is  treated  more  at  length  in  Section  36,  Special 
Partners. 

§  27.     The  Firm  Name. 

The  firm  title  is  a  matter  of  considerable  importance.8 
Its  form  is  a  matter  of  agreement  among  the  parties  and  is 
usually  prescribed  in  the  articles.  The  usual  practice  where 
there  are  two  partners  is  to  use  both  names,  the  name  of  the 
leading  partner  naturally  coming  first.  If  there  are  more 
than  two  partners,  all  the  names  may  appear,  though  this  is 
unusual  in  mercantile  partnerships.  Usually  but  one  or  two 
names  appear,  the  other  names  being  represented  by  the  addi- 
tion, "&  Co."  Professional  partnerships  on  occasion  use  three 
and  even  more  names  in  the  firm  title. 

8  i  Lindley  on  P.,  p.  112  et  seq.;  George  on  P.,  §  36;  i  Bates  on  P.,  §§  191 
to  206. 


48  PARTNERSHIP   RELATIONS. 


In  the  absence  of  statutory  restriction  any  title  that  is 
preferred  may  be  used  as  a  partnership  designation,  even 
though  it  contain  no  partner's  name.  A  corporate  name  as 
"The  Ansonia  Furniture  Company"  may  be  used  in  most 
states  without  penalty.9  In  New  York  a  firm  using  any  name 
other  than  the  names  of  the  partners  or  some  of  them,  must 
register  such  "trade  name"  together  with  the  real  names  of 
the  partners  in  the  County  Clerk's  office,  under  penalty.  It 
is  also  illegal  in  New  York  to  use  the  suffix,  "&  Co.",  unless 
it  represents  an  existing  or  former  partner.10  Partners  may 
change  the  firm  narrie  without  dissolution  or  any  special  for- 
mality, or  may  have  more  than  one  name  for  the  firm. 

The  firm  name  under  which  a  particular  business  has 
been  done  for  years  becomes  a  valuable  asset,  which  the 
courts  will  protect  from  infringement.  No  one  has  the  right 
to  use  "the  name  of  any  existing  firm  or  corporation  or  a 
name  resembling  an  existing  name,  for  the  purpose  of  work- 
ing a  fraud  upon  the  public  or  of  securing  the  advantage  of 
a  trade  name  and  repute  belonging  to  others.  This  is  known 
in  law  by  the  technical  name  of  "unfair  competition"  and  a 
man  is  not  allowed  to  use  even  his  own  name,  where  it  is 
obvious  that  it  is  being  done  for  the  purpose  of  misleading 
the  public  and  of  obtaining  trade  or  patronage  rightfully  be- 
longing to  others.11  When  a  partnership  is  dissolved,  the 
question  frequently  comes  up  as  to  the  right  of  a  surviving 
partner  to  use  the  trade  name.  (See  §  93.) 

All  business  of  the  firm,  should  be  done  under  the  firm 
name,  although  a  partnership  may  exist  without  any  specific 

9  Holbrook  v.  Insurance  Co.,  25  Minn.  229  (1878);  Crawford  v.  Collins,  45 
Barb.  (N.  Y.)  269  (1866). 

10Sinnott  v.  Bank,  164  N.  Y.  386  (1900);  Gay  v.  Seibold,  97  N.  Y.  472  (1884); 
Sparrow  v.  Kohn,  109  Pa.  St.  359  (1885). 

11  Higgins  Co.  v.  Higgins  Soap  Co.,  144  N.  Y.  462  (1895);  Cement  Co.  v. 
Le  Page,  147  Mass.  206  (1888);  McLean  v.  Fleming,  96  U.  S.  245  (1878);  Stein- 
feld  v.  Nat.,  etc.,  Co.,  99  App.  Div.  (N.  Y.)  286  (1904);  Kidd  v.  Johnson,  100  U.  S. 
617  (1880). 


FORMATION    OF   PARTNERSHIP.  49 

firm  name  and  a  firm  may  be  bound  by  using  the  separate 
names  of  the  partners.12  Usage  may  establish  a  firm  name, 
but  it  is  usual  and  better  that  it  should  be  designated  in  the 
articles.13  An  exception  to  the  general  rule  in  regard  to 
using  the  firm  name  occurs  where  there  are  dealings  in  real 
estate,  conveyances  of  which  can  not  be  made  under  the  title 
of  the  firm.  (See  §  44.) 

The  firm  signature  is  simply  the  name  of  the  firm,  as 
"Herrick,  Simpson  &  Co.,"  written  by  one  of  the  partners  or 
by  any  authorized  agent  of  the  firm.14  It  is  not  necessary  that 
a  member  of  a  partnership  should  add  his  own  name  or  indi- 
cate that  he  signed  it,  though  there  would  be  no  objection  to 
his  so  doing.  If  written  by  an  agent,  who  was  not  a  member 
of  the  firm,  it  would  be  proper  for  him  to  add  his  name  and 
the  character  in  which  he  signed. 

If  the  firm  name  is  signed  and  the  individual  members 
sign  also,  each  one  thus  adding  his  name  without  qualification, 
assumes  full  personal  responsibility  for  the  instrument  he  has 
signed.  At  the  option  of  the  other  party  to  the  obligation, 
either  the  firm  or  any  one  of  the  individual  partners  whose 
names  are  attached  may  be  held  primarily  liable  for  the  due 
performance  of  the  doubly  signed  agreement.15 

12  i    Bates   on   P.,    §§    200,   452,   453;    Berkshire   Co.    v.    Juillard,    75    N.    Y.    535 
(1879);   Staats  v.   Hewlett,  4  Denio   (N.   Y.)    559    (1847). 

13  Bank  v.    Gallaudet,    120   N.   Y.    298    (1890). 

14  Staats    v.    Howlett,    4    Denio    559    (1847), 

15  i   Bates  on  P.,  £   453  a. 


CHAPTER  VII.  - 
PARTIES. 

§  28.     Competency. 

As  partnership  is  strictly  a  contract  relation,  it  is  essential 
that  the  parties  to  it  be  competent  to  contract.  Anyone  who 
is  competent  to  bind  himself  by  agreement  is  competent  to 
enter  into  the  partnership  relation.1  The  capacity  of  different 
classes  of  persons  to  contract  is  discussed  in  the  succeeding 
sections. 

§  29.     Minors. 

The  general  rule  as  to  the  contracts  of  a  minor  is  that 
they  are  voidable,  not  absolutely  void,  and  may  be  affirmed 
or  disaffirmed  at  his  discretion  upon  his  arrival  at  majority. 
Also,  previous  to  that  time,  he  may  disaffirm  them  at  will. 
This  general  rule  applies  to  the  contract  of  partnership  as  to 
any  other  contract.2 

Generally  the  minor  is  the  only  one  who  can  take  ad- 
vantage of  his  disability.  His  incapacity  is  a  personal  dis- 
qualification, of  which  he  alone  is  entitled  to  take  advantage.3 

Ji  Lindley  on  P.,  p.  71;  Parsons  on  P.,  §  14;  i  Bates  on  P.,  §§  130  to  150; 
22  Am.  &  Eng.  Ency.  of  Law,  p.  68. 

3  i  Lindley  on  P.,  p.  74;  Sparrman  v.  Keim,  83  N.  Y.  245  (1880);  Dunton  v. 
Brown,  31  Mich.  182  (1875);  Adams  v.  Beall,  67  Md.  53  (1887);  Osburn  v.  Farr, 
42  Mich.  134  (1879);  Kerr  v.  Bell,  44  Mo.  120  (1867). 

3  Beardsley  v.  Hotchkiss,  96  N.  Y.  201  (1884);  Brown  v.  Ins.  Co.,  117  Mass. 
479  (1875);  Bank  v.  Strauss,  137  N.  Y.  148  (1893);  Yates  v.  Lyon,  61  N*  Y.  344 
(1874). 

50 


PARTIES.  51 

In  Continental  National  Bank  v.  Strauss,  cited  below,  it  is 
said: 

"There  can  be  no  question  but  that  an  infant  may 
become  interested  in  business  as  a  general  partner. 
Nothing  forbade  it  at  common  law  and  nothing  in  the 
statutory  law  now  forbids  it.  His  infancy  was  a  factor 
in  the  situation,  which  enabled  him  to  disaffirm  his  obli- 
•  gations  and  agreements  and,  in  that  respect,  the  privi- 
lege was  a  personal  one  to  himself.  Infancy  does  not 
disable  one  from  entering  into  contracts  and  so  long  as 
the  infant  does  not  avail  himself  of  the  privilege  to  set 
up  his  infancy  in  bar  of,  or  to  avoid,  an  obligation,  his 
position  and  his  acts  are  as  those  of  any  responsible  per- 
son. Any  other  view  of  his  situation  would  lead  to  hold- 
ing all  his  acts  and  engagements  void;  whereas  they  are 
voidable  merely  at  his  election." 

If,  however,  a  minor  falsely  represents  that  he  is  of  age, 
the  adult  who,  relying  on  the  truth  of  his  statement,  has 
formed  a  partnership  with  him,  may,  on  discovering  the  truth, 
dissolve  the  partnership  without  incurring  liability.4 

While  a  minor  is  acting  as  a  partner,  he  has  all  the 
rights  and  powers  of  a  partner  and  can  bind  the  firm  by 
whatever  he  does,  within  the  scope  of  the  partnership  busi- 
ness. The  instability  of  his  personal  contracts  does  not  enter, 
because  while  contracting  for  the  firm  he  is  acting  solely  as 
an  agent,  not  in  his  own  behalf.  Like  any  other  partner  he 
is  an  agent  for  the  firm,  and  obligations  incurred  by  him  on 
its  account  are  fully  binding  upon  the  partnership.5 

Should  the  firm  become  insolvent,  a  minor  acting  as  a 
partner  may  take  advantage  of  his  infancy,  refuse  the  part- 
nership liability,  and  leave  his  associates  to  bear  the  entire 
burden  of  the  partnership  obligations,  including  those  which 

4  Bush   v.    Linthicum,    59    Md.    344    (1882). 
6  Bush   v.    Linthicum,    supra. 


52  PARTNERSHIP   RELATIONS. 

he  himself  created.6  It  is  not  probable  that  under  these  cir- 
cumstances he  would  be  allowed,  to  withdraw  his  partnership 
investment,  but  beyond  this  he  could  not  be  held  liable  or 
forced  to  participate  in  any  way  in  the  losses.  He  might  have 
claimed  his  proportion  of  the  profits  had  the  firm  been  suc- 
cessful, but  he  can  not  be  drawn  into  its  losses  against  his 
will.  The  admission  of  minors  into  a  partnership  is  not  un- 
common, usually  because  of  relationship,  but  the  wisdom  of 
the  course  is  doubtful. 

If  a  minor  who  has  acted  as  a  partner  before  coming  of 
age  continues  to  so  act  upon  attaining  majority,  he  thereby 
ratifies  the  partnership  contract,  whether  or  not  he  makes  any 
express  declaration  to  that  effect.  He  then  assumes  his  full 
share  of  the  partnership  liability,  and  is  responsible,  precisely 
as  are  the  other  members  of  the  firm,  for  all  obligations  con- 
tracted after  the  date  of  his  maturity.  Whether,  by  merely 
continuing  to  act  without  other  ratification  of  any  sort,  he 
also  renders  himself  liable  for  debts  and  obligations  con- 
tracted by  the  firm  before  his  coming  of  age,  is  a  question 
which  has  not  yet  been  fully  settled. 

§  30.  Married  Women. 

At  common  law  a  married  woman  was  not  competent 
to  contract, "and  hence  could  not  enter  into  partnership.  Now, 
however,  the  disabilities  of  married  women  have  been  gener- 
ally removed  by  legislation,  and  a  married  woman  may  con- 
tract and  enter  into  a  partnership  at  her  discretion.7  One 
exception  to  the  general  statement  still  exists  in  most  of  the 
states,  in~that  a  married  woman  can  not  make  a  valid  con- 
tract of  partnership  with  her  husband.  It  is  legally  supposed 

6  Gay  v.  Johnson,  32  N.  H.   167   (1855);  Whittemore  v.  Elliott,  7  Hun.    (N.  Y.) 
518    (1876). 

7  i   Lindley  on  P.,  p.   77,  Am.   Note  by  Wentworth;   Parsons  on  P.,   §§    19,   20; 
Vail  v.   Winterstein,   94   Mich.    230    (1892),    18   L.    R.    A.    515;    Abbott   v.    Jackson,   43 
Ark.  216   (1884);  Plumer  v.  Lord,   5  Allen,  460   (1862). 


PARTIES.  53 

that  the  husband  and  wife  are  one,  and  this  theory  precludes 
the  idea  of  a  business  partnership  existing  between  them.8  In 
New  York  and  a  few  other  states,  however,  under  the  word- 
ing of  special  statutes,  decisions  have  been  made  abrogating 
this  rule,  and  holding  that  women  can  become  liable  under 
partnership  and  other  joint  contracts  with  their  husbands.9 
Under  the  common  law  the  marriage  of  a  woman  dissolved, 
at  once,  any  partnership  of  which  she  was  a  member.  It  is 
not  likely  that  under  modern  statutes  it  would  have  this 
effect.10  ' 

§  31.  Aliens. 

There  is  no  restriction  upon  the  right  of  a  citizen  to 
contract,  and,  therefore,  to  enter  into  partnership,  with  an 
alien  in  time  of  peace  between  the  two  countries.11  In  time 
of  war  such  a  partnership  could  not  be  legally  formed,  and 
the  breaking  out  of  a  war  between  the  countries  would  of  itself 
terminate  partnership  relations  between  individuals  of  the 
two  nations.12 

§  32.     Insane  Persons. 

The  partnership  agreement  of  an  insane  person,  like  that 
of  a  minor,  is  not  void  but  voidable.  It  is  not,  .however, 
voidable  at  the  option  of  either  party  to  the  contract,  but 

8  Seattle,    etc.    v.    Hayden,    4    Wash.    263    (1892),    16    L.    R.    A.    530;    Fuller    v. 
McHenry,  83  Wis.   573    (1892),   18  L.  R.  A.   512;  Bowker  v.  Bradford,   140  Mass.   521 
(1885);   Payne  v.   Thompson,  44  O.    St.    192    (1886);   Bassett  v.    Shepardson,   52  Mich. 
3    (1883). 

9  Suau  v.  Caffee,  122  N.  Y.  308  (1890),  9  L.  R.  A.  593;  Le  Grand  tfTBank,  81 
Ala.    123    (1886);    Schlapback    v.    Long,    90    Ala.    525    (1889);    Schofield    v.    Jones,    85 
Ga.    816    (1890). 

10  2    Lindley    on    P.,    p.    584;    Parsons    on    P.,    §    302;    Bassett    v.    Shepardson, 
supra;    Brown   v.    Chancellor,    61    Tex.    437    (1884). 

11  i   Bates  on  P.,   §§    no,   131;   i  Lindley  on  P.,  p.   72;   Story  on  P.,  §  297. 
12Griswold  v.   Waddington,    16  Johns.    (N.   Y.)    438    (1819);   Bank  of  N.   O.   v. 

Matthews,  49  N.  Y.  12  (1872);  Matthews  v.  McStea,  91  U.  S.  7  (1875);  see  also 
Cohen  v.  Insurance  Co.,  50  N.  Y.  610  (1872),  and  Kershaw  v.  Kelsey,  100  Miss. 
561  (1868). 


54  PARTNERSHIP  RELATIONS. 

only  by  legal  adjudication.  If  a  person  became  insane  after 
entering  a  partnership  this  would  not  of  itself  terminate  the 
relation,  even  upon  his  being  judicially  declared  insane,  if  it 
were  a  partnership  for  a  term  of  years.  In  such  case  applica- 
tion would  have  to  be  made  to  the  courts  for  a  decree  of 
dissolution,  and  until  it  had  been  secured  the  partnership 
would  continue.  In  Raymond  v.  Vaughan,  cited  below,  the 
court  said: 

"The  rule  supported  by  the  decided  weight  of  au- 
thority, and  announcing  the  correct  doctrine  is  that  the 
insanity  of  a  partner  does  not  per  se  work  a  dissolution 
of  the  partnership,  but  may  constitute  sufficient  grounds 

to  justify  a  court  of  equity  in  decreeing  its  dissolution." 
*  *  * 

"At  any  time  after  the  insanity  of  Vaughan,  the 
continuing  partner  had,  if  he  saw  proper  to  exercise  it, 
the  right  to  apply  for  a  dissolution  of  the  partnership, 
or,  as  it  was  a  partnership  at  will,  might  have  dissolved 
it  of  his  own  volition." 

If,  however,  the  sane  partner  continues  the  business,  with- 
out taking  steps  to  dissolve  the  partnership,  it  is  held  to  en- 
dure, and  he  must  account  for  the  share  of  profits  to  which, 
under  the  partnership  agreement,  his  partner  is  entitled.13 

§  33.     Other  Firms. 

A  partnership  may  be  entered  into  between  already  ex- 
isting firms,  or  between  a  firm  and  an  individual,  as  readily 
as  may  any  other  contract.14  Under  such  an  arrangement 
the  profits  and,  in  case  of  dissolution,  the  assets  are  divided 
among  the  component  firms  or  parties,  and  then  subdivided 

13  i    Lindley   on    P.,    p.    74;    2    Bates    on    P.,    §§    132,    581;    Rowland    v.    Evans, 
30   Beav.   302    (1861);    Davis  v.    Lane,    10   N.    H.    156    (1839);    Raymond  v.    Vaughan, 
128   111.   256    (1889),   4  L.    R.   A.    440. 

14  In  re   Hamilton,    i    Fed.    Rep.    800    (1880);    Raymond   v.    Putnam,   44   N.    H. 
160    (1862);    Bullock   v.    Hubbard,    23    Cal.    496    (1863). 


PARTIES.  55 

by  the  firms  among  their  individual  members.  As  to  liability 
to  third  persons,  the  arrangement  is  simply  a  partnership  of 
all  the  individuals.15 

A  partner  may  agree  with  an  outside  party  to  share  his 
interest  in  the  profits  and  property  of  the  firm.  Such  an  ar- 
rangement is  termed  a  sub-partnership.  It  may  be  entered 
into  without  the  consent  of  the  firm,  and  without  affecting  in 
any  way  its  existence  or  operations.  The  sub-partner  is  not 
a  member  of  the  original  firm,  is  not  liable  to  its  creditors, 
and,  under  ordinary  circumstances,  has  no  right  of  accounting 
against  it.16 

§  34.     Corporations. 

It  is  but  seldom  that  the  question  of  a  partnership  with 
a  corporation  or  between  corporations  arises.  It  has  been 
maintained  that  as  they  can  only  fulfill  their  corporate  pur- 
poses, and  as  those  purposes  do  not  embrace  partnership  re- 
lations, corporations  can  not  become  partners.17 

On  this  point  the  New  York  Court  of  Appeals  in  The 
People  v.  North  River  Sugar  Refining  Co.,  cited  below,  said : 

"We  are  enabled  to  decide  that  in  this  State  there 
can  be  no  partnerships  of  separate  and  independent  cor- 
porations, whether  directly,  or  indirectly,  through  the 
medium  of  a  trust;  no  substantial  consolidations  which 
avoid  and  disregard  the  statutory  permissions  and  re- 
straints, but  that  manufacturing  corporations  must  be 
and  remain  several  as  they  were  created,  or  one  under 
the  statute." 

It  has  been  held,  however,  to  the  contrary,  that  when  its 

15  Meyer   v.    Krohn,    114   111.    574    (1885). 

10Lindley  on  P.,  p.  48;  Burnett  v.  Snyder,  81  N.  Y.  550  (1880);  Nirdlinger 
v.  Bernheimer,  133  N.  Y.  45  (1892);  Meyer  v.  Krohn,  supra;  Setzer  v.  Beale,  19 
W.  Va.  274  (1882);  Rockafellow  v.  Miller,  107  N.  Y.  507  (1887). 

17  People  v.  N.  R.  Sugar  Ref.  Co.,  121  N.  Y.  582  (1890);  Morris  Co.  v. 
Barclay  Co.,  68  Pa.  St.  173  (1871);  Hackett  v.  Railroad  Co.,  12  Or.  124  (1885); 
Whittenton  Mills  v,  Upton,  10  Gray  587  (1858). 


5  PARTNERSHIP   RELATIONS. 

charter  expressly  permits  a  corporation  to  enter  into  such  a 
relation,  it  may  form  a  legal  partnership.18  It  is  also  possible 
for  a  corporation  to  make  itself  liable  as  a  partner  to  third 
persons.19 

The  charters  of  modern  corporations  in  the  more  liberal 
states,  and  more  particularly  in  New  Jersey,  are  usually  drawn 
with  such  free  provisions  that  the  corporation  is  authorized 
to  enter  into  any  kind  of  business  relation,  including  partner- 
ships of  every  description.20 

18  Butler  v.    Toy   Co.,   46   Conn.    136    (1878). 

"Cleveland    Co.    v.    Courier   Co.,    67    Mich.    152    (1887). 

20  The  following  are  instances  of  the  charter  powers  that  may  be  given  cor- 
porations under  the  laws  of  Delaware,  New  Jersey  and  other  states  that  have  similar 
laws: 

(i)  To  enter  into,  make,  perform  and  carry  out  contracts  of  every  sort  and 
kind,  with  any  person,  firm,  association,  corporation,  private,  public  or  municipal, 
or  body  politic,  and  with  the  government  of  the  United  States,  or  any  state,  terri- 
tory or  colony  thereof,  or  with  any  foreign  government. 

(k)  To  do  any  or  all  of  the  things  set  forth  in  this  certificate  as  objects, 
purposes,  powers  or  otherwise,  to  the  same  extent  and  as  fully  as  natural  persons 
might  or  could  do,  and  in  any  part  of  the  world,  as  principals,  agents,  contractors, 
trustees  or  otherwise. 

— Charter  of  the  Jersey  Paving  Corporation,   §   3. 

"To  become  a  member  of  any  partnership  or  a  party  to  any  lawful  agree- 
ment for  sharing  profits,  or  to  any  union  of  interests,  agreement  for  reciprocal 
concessions,  joint  adventure,  or  co-operation  or  mutual  trade  arrangement  with 
any  person  or  firm  or  company  that  is  carrying  on  or  engaged  in,  or  about  to  carry 
on  or  engage  in,  any  business  which  this  corporation  is  authorized  to  carry  on,  or 
is  engaged  in,  or  that  is  conducting  any  business  or  transaction  capable  of  being 
conducted  so  as  directly  or  indirectly  to  benefit  this  corporation." 

— Charter  of  American  &  Foreign  Line,  Dill  on  N.  J.  Corp.,  p.  324. 


CHAPTER  VIII. 
RELATION  OF  PARTNERS  TO  FIRM. 

§  35.     General  Partners. 

A  general  or  active  partner  is  one  who  takes  part  in  the 
management  of  the  business,  and  who  is  liable  for  the  firm's 
obligations  without  limitation  as  to  amount.  The  term  is 
used  to  distinguish  between  the  general  and  the  special  part- 
ner, the  latter  being  one  whose  liability  is  limited  to  some 
specific  amount.  (See  §  36.)  Unless  by  the  observance  of 
some  statutory  procedure  a  partner  has  limited  his  liability, 
he  will,  as  to  third  persons,  be  held  in  every  case  to  be  a 
general  partner.  The  law  of  partnership  as  given  in  this 
work  applies  to  general  partners,  and  whenever  the  word 
"partner"  is  used,  a  general  or  active  partner  is  understood. 
It  is  to  be  noted  that  the  terms  general  and  special  partner 
have  no  connection  with  and  are  used  in  an  entirely  different 
sense  from  the  terms  "general  partnership"  and  "special  part- 
nership." (See  §§  5,  6.) 

The  distinction  between  general  and  special  partners  is 
clearly  set  forth  in  the  New  York  statute  which  follows,  and 
which  gives  a  concise  and  correct  statement  of  the  law,  ap- 
plicable everywhere. 

Limited  partnership.  A  limited  partnership  con- 
sists of  one  or  more  persons  called  general  partners,  and 
also  one  or  more  persons  called  special  partners.  Laws 
of  1897  (N.  Y.),  Ch.  420,  §  4- 

57 


58  PARTNERSHIP  RELATIONS. 

Authority  of  general  [partner.  Every  general 
partner  is  agent  for  the  partnership  in  the  transaction 
of  its  business,  and  has  authority  to  do  whatever  is  neces- 
sary to  carry  on  such  business  in  the  ordinary  manner. 
Id,  §  5- 

Liability  of  general  partner.  Every  general  part- 
ner is  liable  to  third  persons  for  all  the  obligations  of  the 
partnership,  jointly  and  severally  with  his  general  co- 
partners. Id.,  §  6. 

Liability  of  special  partner.  A  special  partner, 
except  as  declared  in  this  chapter,  is  liable  for  the  obli- 
gations of  the  limited  partnership  only  to  the  amount 
of  the  capital  invested  by  him  therein.  Id.,  §  7. 

§  36.     Special  Partners. 

A  special  partner  is  one  who  does  not  participate  to  the 
full  in  partnership  liability.  The  partnerships  in  which  special 
partners  have  place  are  termed  limited  partnerships.  A  lim- 
ited partnership  must  have  one  or  more  general  partners,  and 
one  or  more  special  partners,  the  latter  taking  no  active  part 
in  the  business.  They  may  be  formed  only  in  states  where 
they  are  specifically  authorized  by  law  (see  §  9),  and  only 
for  those  purposes  specified  in  the  statute,  which  are  usually 
mercantile,  mechanical  or  manufacturing.  The  object  of  these 
laws  is  to  allow  persons  to  invest  capital  in  a  partnership  and 
share  in  its  profits  without  taking  any  active  part  in  the  busi- 
ness, and  without  incurring  liability  beyond  their  actual  in- 
vestment. The  theory  on  whch  the  arrangement  is  based  is 
that  the  publicity  enjoined  notifies  those  having  dealings  with 
the  firm  that  the  special  partners  have  but  limited  liability; 
hence,  if  any  give  credit,  they  do  so  knowingly,  and  are  not 
wronged  by  the  limitation  of  liability. 

A  special  partner  must  not  participate  or  interfere  in  the 
direct  management  of  the  business.  If  he  does  he  thereby 


RELATION    OF   PARTNERS   TO    FIRM.  59 

forfeits  his  exemption  from  liability  and  at  once  becomes  a 
general  partner. 

The  procedure  necessary  to  form  a  limited  partnership 
is  almost  as  formal  as  the  incorporation  of  a  stock  company, 
usually  involving  the  execution  and  acknowledgment  of  a 
certificate  of  the  facts  relating  to  the  partnership,  the  filing 
and  recording  of  the  same,  and  publication  both  of  the  cer- 
tificate and  of  an  affidavit  that  the  investment  of  the  special 
partner  has  actually  been  paid  in  cash.  Generally  the  cer- 
tificate must  also  state  the  name  of  the  firm,  where  its  busi- 
ness is  to  be  done,  its  purposes,  the  names  and  residences  of 
the  general  and  special  partners,  the  investments  of  the  special 
partners,  and  when  the  partnership  is  to  begin  and  terminate. 
In  each  state  it  is  necessary  to  consult  the  statutes  and  to 
follow  accurately  the  procedure  there  outlined.1  Failure  to 
observe  the  required  formalities  may  result  in  making  the 
special  partners  liable  to  creditors  as  general  partners.2 

§  37.     Dormant  Partners. 

A  dormant  partner  is  one  who  has  invested  as  a  part- 
ner but  whose  connection  with  the  firm  is  secret  and  who  has 
no  part  in  the  management  of  the  business.3  He  has  no  legal 
status,  exemptions  or  privileges  beyond  those  of  a  general 
partner,  except  as  the  direct  result  of  the  secrecy  of  his  con- 
nection. If  this  connection  is  discovered  he  is  liable  in  ex- 
actly the  same  way  and  to  the  same  extent  as  any  general  or 
active  partner.4  Unless  precluded  by  the  terms  of  the  part- 
nership contract,  he  may  at  any  time  assert  himself  as  a  gen- 

1  See  N.   Y.   Laws  of   1897,  Ch.   420,  for  New  York  Statutes. 

2  See  ante,    Section  9,  and  authorities  there  cited. 

3  i    Lindley   on   P.,   pp.    178,   245;    i    Bates   on   P.,    §    10;    George   on   P.,    §    33; 
Metcalf  v.  Officer,  2  Fed.  Rep.  640   (1880);  North  v.  B'loss,  30  N.  Y.  374  (1864). 

*  Oppenheimer  v.  Clemmons,  18  Fed.  Rep.  886  (1883);  Winship  v.  Bank  of 
U.  S.,  5  Peters  529  (1831);  Berthold  v.  Goldsmith,  24  Howard  536  (1861);  Elmira, 
etc.,  Co.  v.  Harris,  124  N.  Y.  280  (1891);  Bromley  v.  Elliot,  38  N.  H.  287  (1859)- 


60  PARTNERSHIP   RELATIONS. 

eral  partner  and  participate  in  the  management  of  the  firm 
business. 

An  active  partner  wishing  to  withdraw  from  the  firm  in 
such  a  way  as  to  cut  off  subsequent  liability,  must  give  notice 
to  all  those  with  whom  the  firm  is  doing  business.  A  dormant 
partner,  on  the  contrary,  may  withdraw  without  notifying 
those  who  do  business  with  the  firm  and  after  such  with- 
drawal he  can  not  be  held  for  any  subsequent  liability  of  the 
firm,  even  though  his  previous  connection  with  it  should  be- 
come known.5  His  withdrawal,  however,  does  not  free  him 
from  liability  for  anything  done  by  the  firm  during  his  con- 
nection therewith. 

The  term  "silent  partner"  is  often  used  with  much  the 
same  meaning  as  "dormant  partner."  There  is,  though,  this 
difference,  that  a  dormant  partner  must  be  both  "secret"  and 
"silent,"  while  a  silent  partner  need  not  be  secret.  A  silent 
partner  has  no  voice  in  the  management  of  the  firm  business, 
but  may  be  publicly  known  as  a  partner.  He  is  liable  for  firm 
obligations  just  as  is  any  other  partner,  and  if  he  withdraws 
he  must  give  notice  to  'escape  subsequent  liability.  In  a  firm 
where  there  are  silent  or  dormant  partners,  the  partners  who 
actually  manage  the  business  would  be  known  as  active  part- 
ners. 

The  relation  of  a  dormant  partner  is  always  unsafe  and 
of  doubtful  utility.  At  any  time  it  may  be  discovered  and 
the  dormant  partner  be  held  as  any  other  partner.  Where  it 
is  desired  to  invest  in  a  business  and  avoid  liability,  a  limited 
partnership  or  a  corporation  should  be  formed. 

§  38.     Nominal  Partners. 

A  nominal  partner  is  one  who,  while  not  really  a  part- 
ner, in  that  he  has  no  interest  in  the  business  or  profits,  allows 
his  name  to  be  used  or  to  appear  as  that  of  a  partner.  The 

ei   Lindley  on  P.,  pp.    178,  212,  245;  see  Elmira,  etc.,  Co.  v.   Harris,  supra. 


RELATION    OF    PARTNERS   TO    FIRM.  6l 

effect  of  such  holding  out  is  that  the  nominal  partner  has 
practically  all  the  liabilities  of  a  partner  and  none  of  the 
advantages. 

Occasionally  a  person  allows  himself  to  be  used  as  a 
nominal  partner  for  the  purpose  of  assisting  a  firm,  much  as 
he  might  endorse  its  note,  or  guarantee  its  credit  in  other 
ways.  He  can,  however,  only  become  a  nominal  partner  by 
his  own  act  or  neglect;  he  can  not  be  forced  into  any  such 
relation. 

If  a  person  allows  himself  to  be  held  out  as  a  partner 
he  is  fairly  held  liable  to  those  who  give  credit  to  the  firm 
on  faith  or  with  knowledge  of  his  being  a  member,  even 
though  he  has  no  beneficial  interest  in  the  firm.6  He  is  not, 
however,  liable  to  a  creditor  who  had  no  knowledge  of  such 
holding  out.7 

Members  of  an  incorporated  partnership  business  have 
been  held  liable  as  partners  for  the  debts  of  the  corporation, 
because  they  neglected  to  notify  those  with  whom  they  were 
dealing,  that  the  business  had  been  incorporated.8 

6  Poole  v.   Fisher,   62   111.    181    (1871);   Bissell  v.   Warde,    129   Mo.   439    (1895); 
Lancaster,   etc.,    Bank   v.    Boffenmyer,    162    Pa.    St.    559    (1894);    Poillon   v.    Secor,   61 
N.   Y.  456   (1875). 

7  Seabury  v.   Crowell,  52  N.  J.   L.  413,   n   L.  R.  A.   136   (1890);  Thompson  v. 
Nat.   Bank,   in   U.   S.   529   (1884);   Webster  v.   Clark,  34  Fla.   637,  27   L.   R.   A.    126 

(1894). 

8  McGowan   v.    Tan-Bark    Co.,    121    U.    S.    575    (1887);    Wechselberg   v.    Bank, 
64  Fed.  Rep.  90  (1894),  26  L.  R.  A.  470;  see  also  Central  Bank  v.  Walker,  66  N.  Y. 
424    (1876). 


PART  III.— CONDUCT  OF  BUSINESS. 


CHAPTER  IX. 
THE  PARTNERSHIP  PROPERTY. 


§  39.     The  Partnership  Investment. 

The  partnership  investment  is  the  money  or  property, 
tangible  or  intangible,  contributed  by  the  partners  for  the 
purposes  of  the  business.  It  may  be  contributed  in  equal  or 
unequal  proportion,  or  one  partner  may  furnish  the  entire 
amount.  It  may  be  paid  in  at  the  inception  of  the  partnership, 
or  thereafter  as  needed,  or  as  the  partners  may  be  able.  In 
case  of  dissolution,  unless  otherwise  expressly  agreed,  the  full 
amount  of  each  partner's  investment  is  returned  to  him  if  still 
intact.1 

The  partnership  investment  does  not  itself  in  any  way 
control  or  determine  the  partners'  interests  in  the  results  of  the 
business.  .  If  profits  are  made  they  may,  by  agreement,  be  ap- 
portioned on  the  basis  of  investments  or  in  any  other  way  the 
partners  may  desire,  but  in  the  absence  of  such  agreement 
they  will  be  divided  equally  among  the  partners  without  re- 
gard to  their  comparative  investments.2  So,  also,  if  losses 
occur  they  will  be  apportioned  equally  among  the  partners 

1  Whitco'nib   v.    Converse,    119    Mass.    38    (1875);    Livingston   v.    Blanchard,    130 
Mass.    341    (1881);    Jackson   v.    Crap,   32    Ind.    422    (1869);    Schutte   v.    Anderson,    13 
G.   &   S.    (N.   Y.    Super.)   489    (1879);   Dean  v.   Dean,   54  Wis.   23    (1882). 

2  Moley    v.    Brine,    120    Mass.    324    (1876);    Jones    v.    Butler,    87    N.    Y.    613 
(1882). 

62 


THE   PARTNERSHIP    PROPERTY.  63 

unless  otherwise  expressly  agreed.3  That  is,  there  is  no  neces- 
sary relation  between  the  partner's  investment  and  his  partici- 
pation in  the  profits  or  losses  of  the  firm. 

Unless  otherwise  agreed,  on  -dissolution  of  a  firm  with 
sufficient  assets,  the  amount  of  each  partner's  investment  is 
returned  to  him  in  full.  Any  remainder,  as  profits  of  the 
business,  is  then  divided  among  the  partners  in  equal  pro- 
portion. If  losses  have  been  incurred,  the  distribution  of  as- 
sets is  somewhat  more  involved.  The  losses  must  first  be  appor- 
tioned equally  among  the  partners,  and  the  amount  to  be  paid 
each  on  his  investment  account  must  be  diminished  by  this 
amount. 

For  instance,  A  and  B  may  form  a  partnership,  A  putting 
in  $5,000  and  B,  $10,000,  without  express  provision  for  ap- 
portionment of  profits  and  losses.  If,  on  dissolution,  it  is 
found  that  the  original  partnership  investment  has  been  in- 
creased by  $12,000,  A  will  receive  his  $5,000  from  the  assets 
of  the  firm,  B  will  receive  his  $10,000,  and  each  will  receive 
$6,000  as  his  share  of  the  profits.  If,  however,  it  should  be 
found  that  the  firm  had  lost  $12,000,  half  of  this -loss,  or 
$6,000,  must  be  borne  by  either  partner.  A  then  not  only 
loses  his  entire  investment  of  $5,000,  but  is  liable  for  $1,000 
more.  B  with  his  $10,000  investment  has  $4,000  due  him, 
but  as  the  entire  partnership  assets  are  only  $3,000,  he  must 
look  to  A  for  $1,000  of  this  amount.  If  such  results  seem  in- 
equitable to  intending  partners,  they  may  be  avoided  by  ar- 
ranging in  the  partnership  agreement  for  any  desired  appor- 
tionment of  profits  and  losses. 

A  partner  has  no  claim  to  interest  on  his  investment,  or 
even  on  money  put  in  over  and  above  his  agreed  investment, 
unless  it  has  been  expressly  so  agreed.  If  a  partner  advances 
or  loans  money  to  his  firm  it  is  proper  that  he  should  receive 
interest  on  it,  but  in  the  absence  of  any  agreement,  under- 

3  2  Bates  on  P.,  §  813;  Flagg  v.  Stowe,  85  111.  164  (1877);  Jones  v.  Butler, 
87  N.  Y.  613  (1882). 


64  PARTNERSHIP  RELATIONS. 


standing  or  usage  concerning  the  matter,  he  will  not  be  able 
to  enforce  such  claim.  (See  §  65.)  It  should  be  said,  how- 
ever, that  this  rule  seldom  obtains  if  any  reason  can  be  found 
for  mitigation  of  its  harshness.4 


40.     Partnership  Property. 


The  original  property  of  a  partnership  is  derived  from  the 
contributions  of  the  partners.  When  profits  are  made,  they 
may  be  drawn  out,  or  they  may  be  allowed  to  accumulate  and 
meanwhile  may  be  used  in  the  prosecution  of  the  firm  business. 
If  retained  in  the  business  they  are  practically  merged  in  the 
original  capital,  the  two  together  constituting  the  partnership 
property.5  This,  while  the  merger  continues,  is  used  for  the 
purposes  of  the  partnership  without  distinction  as  to  its  origin. 
In  the  event  of  dissolution,  however,  a  distinction  is  made, 
the  original  investment  being  returned  to  the  partners  in  the 
exact  amounts  which  each  put  in,  while  the  accumulated  profits 
are  divided  among  them,  either  equally  or  in  any  proportion 
which  may  have  been  specified  in  the  articles  of  association. 
(See  §  39.) 

Any  property  purchased  with  partnership  funds  becomes 
prima  facie  partnership  property.6  If  such  property  were 
taken  in  the  name  of  a  single  partner,  he  would  hold  as  trus- 
tee for  the  firm.7 

So  long  as  the  firm  is  solvent  the  partners  may  by  unani- 

4  Rogers  v.  Clement,  162  N.  Y.  422  (1900);  Collender  v.  Phelan,  79  N.  Y. 
366  (1880);  Morriss  v.  Allen,  14  N.  J.  Eq.  44  (1861);  Gilhooley  v.  Hart,  8  Daly 
(N.  Y.)  176  (1878);  Sweeney  v.  Neely,  53  Mich.  421  (1884);  Hartman  v.  Woehr, 
18  N.  J.  Eq.  383  (1867);  Winchester  v.  Glazier,  152  Mass.  316  (1890). 

6  Procter  v.   Procter,   i   Ohio  Dec.   652   (1894);  contra,  Dean  v.   Dean,   54  Wis. 

23    (1882). 

6  Somerby    v.    Buntin,    118    Mass.    279    (1865);    Collins    v.    Butler,    14    Cal.    223 
(1859);   Hill  v.  Miller,  78   Cal.    149    (1889);   Bank  v.   Miller,    153   111.   244    (1894). 

7  Traphagen    v.    Burt,    67    N.    Y.    30    (1876);    Davis    v.    Davis,    60    Miss.    615 
(1882);    Partridge  v.    Wells,   30   N.   J.    Eq.    176    (1878). 


THE   PARTNERSHIP   PROPERTY,  65 

mous   consent   change   partnership   property   into   individual 
property  and  may  reverse  the  process  at  will.8 

The  dissolution  of  a  firm  does  not  destroy  the  joint  in- 
terest of  the  partners  in  the  partnership  property,  or  make 
them  tenants  in  common ;  the  property  continues  to  be  partner- 
ship property  until  disposed  of  in  some  manner.9 

§  41.     Firm  Name,  Good-will,  Trade-marks. 

The  firm  name,  the  good-will  of  the  business  and  any 
trade-marks  used  in  the  business  are  the  property  of  the  part- 
nership, in  which  each  partner  has  his  interest.  These  in- 
tangible possessions  are  often  of  great  value,  and  in  any  final 
settlement  of  the  affairs  of  a  partnership  should  be  disposed 
of  for  the  benefit  of  all  the  partners.10  (See  §  93.) 

The  firm  name  is  at  times  a  very  desirable  property.  In 
case  of  the  death  of  a  partner  the  right  to  use  the  firm  name 
does  not  pass  to  the  survivors.11  Such  right  may  be  acquired 
in  the  re-organization  of  the  firm,  but  the  interest  of  the  de- 
ceased partner  in  the  name  must  be  recognized,  and  in  the 
settlement  it  must  be  treated  as  an  asset  of  the  firm. 

In  a  late  case,  Slater  v.  Slater,  cited  in  the  notes,  the 
New  York  Court  of  Appeals  said: 

"ist.  On  the  facts  of  this  case  the  right  to  con- 
tinue the  use  of  the  firm  name  is  a  firm  asset  and  does 
not  inure  to  the  benefit  of  the  surviving  partner.  2nd. 
The  purchaser  at  the  sale  provided  for  in  the  decree, 

8  Case  v.  Beauregard,  99  U.  S.  119  (1878);  Stanton  v.  Westover,  101  N.  Y. 
265  (1886);  Jones  v.  Tusk,  2  Mete.  (Ky.)  356  (1859). 

9Roby  v.  A.  C.  Ins.  Co.,  120  N.  Y.  510  (1890);  King  v.  Leighton,  100  N.  Y. 
385  (1885);  Sangston  v.  Hack,  52  Md.  173  (1879). 

10  Parsons   on   P.    (4th   Ed.),    §    181    and   note;   Williams  v.    Farrand,   88   Mich. 
473    (1891),    14  L.    R.   A.    161. 

11  Slater  v.    Slater,   175   N.   Y.    143    (1903);   Caswell  v.   Hazard,   121   N.   Y.   259 
(1893);   Hazard' v.    Caswell,   93    N.    Y.    250    (1890);    Banks   v.    Gibson,   34   Beav.    566 
(1865). 


66  PARTNERSHIP  RELATIONS. 

whether  surviving  partner  or  otherwise,  will  acquire  the 
right  to  continue  the  business  under  the  firm  name." 

If  a  firm  were  dissolved  and  no  disposition  or  agreement 
were  made  as  to  the  firm  name,  each  of  the  partners  would 
have  an  equal  right  to  its  use,  and  might  engage  in  business 
thereunder.  Usually  the. right  to  use  the  firm  name  would, 
on  dissolution,  be  sold  for  the  benefit  of  all  interested. 

The  good-will  of  an  established  business,  resulting  from 
its  repute,  its  advertising  and  its  permanent  patronage,  is  often 
included  with  the  firm  name  as  inhering  in  it.  It  also  at- 
taches usually  to  the  location  of  the  business.  In  professional 
partnerships  it  attaches  to  the  persons  of  the  partners. 
Though  purely  intangible  it  is  partnership  property,  often  of 
much  value,  and  the  interest  of  a  deceased  partner  in  the  good- 
will he  has  helped  to  develop  must  be  recognized.12  As  it  is 
difficult  for  a  court  to  estimate  the  value  of  good-will,  the 
articles  should,  where  it  is  feasible,  provide  for  its  valuation 
in  case  of  dissolution.  Too  frequently,  it  is  dissipated  with- 
out advantage  to  anyone. 

If  the  business  were  sold  as  a  whole,  the  good-will  would 
pass  with  the  firm  name  and  the  tangible  assets.  The  retiring 
partners  could  not  thereafter  engage  in  the  same  business, 
even  under  their  own  names,  in  any  way  that  might  lead  the 
public  to  believe  that  they  were  continuing  the  old  business.13 

Any  trade-marks  used  by  the  firm  are  its  property  in  like 

12Lobeck  v.  Lea-Clark  Co.,  37  Neb.  158  (1893);  23  L.  R.  A.  795;  Hutchin- 
son  v.  Nay,  187  Mass.  262  (1905),  68  L.  R.  A.  186;  Snyder  v.  Snyder  Mfg.  Co., 
54  Ohio  St.  86  (1896),  31  L.  R.  A.  657;  Hoxie  v.  Chancy,  143  Mass.  592  (1887)- 

I8  2  Lindley  on  P.,  p.  445;  Hazard  v.  Caswell,  121  N.  Y.  484  (1893);  Slater 
v.  Slater,  supra;  Snyder  v.  Snyder  Mfg.  Co.,  supra;  Lane  v.  Smythe,  46  N.  J.  Eq. 
443  (1890);  Rogers  v.  Taintor,  97  Mass.  291  (1867);  Banks  v.  Gibson,  34  Beav.  566 
(1865);  Merry  v.  Hoopes,  in  N.  Y.  413  (1888);  Burkhardt  v.  Burkhardt,  36  O.  St. 
261  (1880);  Lamb  Co.  v.  Lamb  Co.,  120  Mich.  159  (1899),  44  L.  R.  A.  841.  See, 
though,  Williams  v.  Farrand,  88  Mich.  473  (1891),  14  L.  R.  A.  161,  which  gives  a 
full  discussion  of  the  subject;  Cottrell  v.  Babcock,  54  Conn.  122  (1886);  Meneely  v. 
Meneely,  62  N.  Y.  431  (1875);  Bingham  School  v.  Gray,  122  N.  C.  699  (1898), 
41  L.  R.  A.  243;  Bagby,  etc.,  Co.  v.  Rivers,  87  Md.  400  (1898),  40  L.  R.  A.  632. 


THE   PARTNERSHIP    PROPERTY.  67 

manner  with  the  firm  name.14     In  Caswell  v.  Hazard,  cited 
below,  it  was  said: 

"The  right  to  a  trade  mark  is  derived  from  its  ap- 
propriation and  continual  user,  and  becomes  the  property 
of  those  who  first  employ  it  and  give  it  a  name  and  repu- 
tation. (Devlin  v.  Devlin,  69  N.  Y.  212;  Colman  v. 
Crump,  70  id.  578.)  It  becomes  part  of  the  assets  of 
the  firm  by  which  it  was  used  and  established,  and  can 
be  owned,  transferred  and  sold  like  other  species  of  prop- 
erty. Upon  the  dissolution  of  a  firm  which  has  acquired 
its  proprietorship,  it  must  be  sold  and  its  proceeds  dis- 
tributed like  other  firm  assets  and,  if  not  so  disposed  of, 
it  remains  the  property  of  the  individual  members  of  the 
dissolved  firm,  and  may  lawfully  thereafter  be  used  by 
any  or  either  of  such  members  desiring  to  continue  the 
prosecution  of  the  business  in  which  it  has  theretofore 
been  used." 

§  42.     Nature  of  Partners'  Interests. 

It  is  always  possible  for  a  partner  to  advance  money  or 
to  let  the  firm  have  the  use  of  property  of  which  he  retains 
the  right  to  possession,  and  such  money  or  property  remains 
his  individual  property.15  Money  or  property,  however,  put 
into  a  partnership  as  an  investment  becomes  the  actual  prop- 
erty of  the  partnership,  and  the  partner  who  invested  it  has 
no  more  right  in  it  or  control  over  it  than  has  any  other  part- 
ner. No  partner  has  any  separate  interest  in  any  portion  of 
the  partnership  property.16  A  surviving  partner  or  partners 
have  a  right  of  possession  for  the  purpose  of  settling  up  the 
affairs  of  the  partnership,  but  this  being  done  the  right  of  pos- 
session ceases,  and  each  has  only  the  right  to  his  proportion 

"Huwer  v.  Dannenhofer,  82  N.  Y.  499  (1880);  Hazard  v.  Caswell,  93  N.  Y. 
259  (1883);  Hoxie  v.  Chancy,  143  Mass.  592  (1887);  Merry  v.  Hoopes,  in  N.  Y. 
415  (1888);  Hall  v.  Barrows,  4  De  G.  J.  &  S.  150  (1863). 

15  George  on  P.,  §§  43  to  47- 

10  Taft  v.  Schwamb,  80  111.  300   (1875);  Kulm  v.  Newman,  49  la.  424  (1878). 


68  PARTNERSHIP   RELATIONS. 

of  the  partnership  assets  when  converted  into  cash.  In  any 
case  of  dissolution  the  assets  must  be  sold,  and  out  of  the 
proceeds  each  partner  must  receive  his  due  proportion.  He 
can  not  demand  a  partition  of  the  property  nor  a  specific 
share,17  except  with  the  consent  of  all  the  interested  parties. 

If  a  partner  sells  his  interest  or  if  it  is  sold  on  execution 
the  purchaser  takes  nothing  but  that  partner's  proportionate 
share  in  the  cash  assets  after  the  partnership  has  been  wound 
up.18  He  can  neither  force  his  way  into  the  partnership,  nor 
demand  a  partition  of  its  property. 

§  43.     Partners'  Power  Over  the  Common  Property. 

Each  partner's  power  over  the  property  of  the  firm  is 
the  same.  Each  is  agent  for  all  the  others  in  all  that  pertains 
to  the  care,  sale  and  management  of  the  partnership  property. 
Any  partner  may  sell  any  part  of  the  personal  property  that  is 
for  sale,  and  his  power  to  purchase  for  the  firm  is  equally 
broad. 

A  partner  can  not,  however,  sell  all  the  firm  assets,  for 
that  would  be  to  put  the  firm  out  of  business;19  nor  can  he 
sell  property  needed  for  the  operations  of  the  firm  in  its  busi- 
ness.20 Any  such  sales  would  be  outside  of  the  ordinary  scope 
of  the  business,  and  hence  outside  of  a  partner's  authority  as 
agent  for  the  firm.  To  make  such  a  sale  effectual  all  of  the 
partners  should  either  authorize  one  of  the  firm  thereto  or 
else  join  directly  in  the  sale.21 

For  a  legitimate  purpose  a  partner  has  also  the  right  to 

"Staats  v.  Bristow,  73  N.  Y.  264  (1878);  Menagh  v.  Whitwell,  52  N.  Y.  146 
(1873);  Hiscock  v.  Phelps,  49  N.  Y.  97  (1872);  Sindelaire  v.  Walker,  137  111.  43 
(1891);  Davis  v.  Davis,  60  Miss.  615  (1882). 

18  Staats  v.   Bristow,   supra;   Deane  v.   Hutchinson,   40   N.   J.    Eq.    83    (1885). 

19  i    Bates  on   P.,   §    401    et  seq.;   Lowman  v.    Sheets,    124   111.   416    (1890). 
soCayton   v.    Hardy,   27    Mo.    536    (1858). 

21  Drake  v.  Thyng,  37  Ark.  228  (1881);  Wilcox  v.  Jackson,  7  Col.  521  (1884); 
Hanchett  v.  Gardner,  138  111.  571  (1891). 


THE   PARTNERSHIP    PROPERTY.  69 

pledge  or  mortgage  the  property  of  the  firm.22  He  has,  how- 
ever, no  power  to  sell  property  of  the  firm  or  to  borrow 
money  upon  it  for  his  own  purposes  or  to  pay  his  own  debts, 
and  anyone  lending  him  money,  or  buying  property  from  him 
under  such  circumstances  with  knowledge  takes  no  title  to  the 
property  in  question.23  It  would  be  otherwise  in  the  case  of 
a  purchaser  who  acted  in  good  faith,  and  without  knowledge 
that  the  transaction  was  not  for  the  benefit  of  the  firm.24  (See 
Chap.  X,  Relations  of  Partners.) 

§  44.     Real  Estate; 

A  firm  as  such  can  not  hold  real  estate.  The  law  does 
not  recognize  it  as  a  legal  entity  capable  of  holding  real  prop- 
erty. Hence,  land  must  be  deeded  to  the  members  of  a  firm 
to  hold  as  tenants  in  common,25  or  to  some  individual,  who  is 
usually  a  member  of  the  firm,  to  hold  as  trustee  for  its  bene- 
fit.20 A  partnership  may  be  formed,  even  by  verbal  contract,27 
for  the  purpose  of  buying  and  selling  land,  but  any  real  prop- 
erty such  partnership  acquires  must  be  held  for  it  by  a  trus- 
tee. (See  §  59,  and  cases  cited.) 

A  conveyance  of  real  estate  to  a  firm  by  name,  in  cases 
where  the  firm  name  contained  the  name  or  names  of  exist- 
ing members,  would  pass  a  legal  title  to  the  members  named, 
who  would  hold  in  trust  for  the  whole  firm.28  If  no  member 

22  Phillips   v.   Trowbridge,   86   Ga.    699    (1890);   Hage  v.    Campbell,   78   Wis.    572 
(1891);    McCarthy  v.    Beisler,    130   Ind.   63    (1891). 

23  Chase  v.   Iron   Works,    55   Mich.    139    (1884);    Bank  v.    Underbill,    102   N.    Y. 
336    (1886);   Hinds  v.   Backus,  45   Minn.    170    (1891). 

24  Locke  v.    Lewis,    124   Mass,    i    (1878). 

25  See  generally  on  this  subject  28  L.   R.   A.   86  et  seq. ;   note  gives  full  discus- 
sion;  also   Tidd  v.    Rines,   26   Minn.    201    (1879). 

20  Riddle  v.    Whitehill,    135   U.    S.    621    (1889). 

27  Rumsey  v.    Briggs,    139   N.    Y.    323    (1893);    Chester  v.   Dickerson,    54   N.    Y. 

i    (1873)- 

28  Sherry   v.    Gilmore,    58    Wis.    324    (1883);    Menaget   v.    Burke,   43    Minn.    211 
(1890). 


70  PARTNERSHIP   RELATIONS. 

were  named  in  the  firm  title,  no  title  would  pass  to  anyone, 
but  the  grantor  could  later  be  compelled  to  deed  to  the  indi- 
vidual members  of  the  firm.29  Likewise  a  conveyance  from 
the  firm  in  the  firm  name,  while  it  would  not  pass  title,  would 
give  the  assignee  such  an  equitable  right  as  would  enable  him 
to  compel  a  valid  transfer  by  the  individual  members  of  the 
firm.30 

Real  estate  held,  as  indicated,  for  the  benefit  of  the  firm 
is  for  all  partnership  purposes  treated  as  personal  property. 
It  is  thus  treated  in  adjusting  equities  between  the  partners, 
or  in  settling  partnership  affairs  for  the  benefit  of  creditors.31 
The  wife  of  a  partner  has  no  right  of  dower  in  it  until  all 
partnership  obligations,  either  to  creditors  or  to  other  part- 
ners, have  been  satisfied.32  The  heir  of  a  deceased  partner 
takes  it  subject  to  the  obligations  of  the  firm.33  As  soon  as 
the  firm  obligations  are  settled  it  resumes  its  character  of 
realty  for  all  purposes. 


§  45.     Attachment  and  Execution. 

A  partner's  interest  can  be  reached  by  attachment  or  by 
execution.  This  interest,  however,  is  merely  a  right  to  a  cer- 
tain proportion  of  the  surplus  after  debts  are  paid  and  the 
affairs  of  the  partnership  are  adjusted,  and  this  is  all  that  can 
be  reached  by  legal  process.  The  debtor  partner  has  no  right 
to  any  specific  portion  of  the  firm  assets,  and  his  creditors  can 
have  no  better  right  than  he  has.  The  effect  of  the  sale  of  a 
partner's  interest  under  execution  would  be  to  give  the  pur- 
chaser the  right  to  merely  the  same  interest  in  value  that  the 

28  Tidd   v.    Rines,    supra;    Blanchard   v.    Floyd,    93    Ala.    53    (1890). 
80  Rovelsky   v.    Brown,   92   Ala.    522    (1890). 

31  Rovelsky  v.  Brown,  supra;  Bank  v.  Miller,  153  111.  244  (1894);  Paige  v. 
Paige,  71  la.  318  (1887). 

82  Paige  v.   Paige,  supra;   Woodward  v.   Nudd,   58   Minn.   236    (1894). 

83  Harris  v.  Harris,   153   Mass.   439   (1890). 


THE   PARTNERSHIP    PROPERTY.  71 

debtor  partner  had.34  Such  a  sale  would,  of  necessity,  dissolve 
the  partnership,  and  make  necessary  an  immediate  settlement 
of  its  affairs.35  All  partnership  debts  would  have  to  be  settled 
before  anything  was  set  aside  for  a  purchaser  under  execu- 
tion. 

An  attachment  will  not  be  granted  against  a  partnership 
unless  all  of  the  partners  have  given  occasion  for  its  issu- 
ance.30 The  fact  that  one  or  more  members  of  the  firm  are 
non-residents,  or  have  absconded,  will  not  justify  an  attach- 
ment against  the  firm  property,  though  it  might  against  the 
individual  interest  therein  of  the  partner  at  fault.37 

Execution  following  judgment  on  a  claim  against  the 
firm  runs  in  the  names  of  the  individual  partners,  and  can  be 
levied  on  the  partnership  property,  or  on  the  individual  prop- 
erty of  any  of  the  partners.38  If  it  is  levied  on  individual 
property,  the  partner  to  whom  such  property  belongs  has  re- 
course against  his  partners  for  their  proportions  of  the  debt. 

On  execution  against  the  partnership  there  can  be  no 
claim  for  homestead  or  exemption  out  of  the  joint  assets.39 
This  is  the  general  law,  but  it  does  not  apply  to  New  York 
and  a  few  of  the  other  states,  in  which  the  provisions  of  the 
exemption  act  are  held  to  extend  to  property  owned  by  a  part- 
nership of  which  the  debtor  was  a  member.40 

34  Staats  v.  Bristow,  73  N.  Y.  268  (1878);  Talbot  v.  Emmons,  99  Ind.  452 
(1884);  Gerard  v.  Bates,  124  111.  150  (1888);  Sirriere  v.  Briggs,  31  Mich.  443 
(1875). 

85  Renton  v.  Chaplin,  9  N.  J.  Eq.  64  (1853);  Wilson  v.  Waugh,  101  Pa.  ^St. 
233  (1882);  Carter  v.  Roland,  53  Tex.  540  (1880). 

36  Allen   v.    Clayton,    n    Fed.    Rep.    73    (1882). 

37  Staats  v.    Bristow,   72   N.   Y.    268    (1878);   but  see  Williams   v.    Mutterspaugh, 
29  Kas.   524   (1883). 

38  Freeman  on  Ex.    (3rd   Ed.),   §    125;  Judd,  etc.,   Co.   v.   Hubbell,   76  N.   Y.    543 
(1879). 

39  Freeman    on    Ex.     (3rd    Ed.),    §    221;    Love    v.    Blair,    72    Ind.    281     (1880); 
Green  v.   Taylor,   98   Ken.   330    (1895). 

^Stewart  v.  Brown,  37  N.  Y.  350  (1867);  Howard  v.  Jones,  50  Ala.  67 
(1875);  Gilman  v.  Williams,  7  Wis.  287  (1859);  Moyer  v.  Drummond,  32  S.  C. 
165  (1890). 


CHAPTER  X. 
RELATIONS  OF  PARTNERS. 


§  46.     Powers  of  Partners. 

The  powers  of  partners  are  strictly  confined  to  those 
matters  within  the  scope  of  the  partnership  business.  Within 
this  limit  each  partner  has  power  to  make  contracts  and  do 
business.  Beyond  this  limit  no  partner  has  authority  to  act 
or  bind  the  firm.  A  partner  in  a  dry  goods  house  could  not 
bind  the  firm  by  a  contract  to  purchase  land.  A  member  of 
a  law  firm  could  not  bind  his  associates  by  giving  the  firm 
note  for  mining  stocks.  The  rule  is  that  whatever  is  usually 
done  in  the  conduct  of  any  particular  business  may  be  done 
by  any  member  of  a  partnership  engaged  in  that  business. 
As  partner  he  is  an  agent  for  the  firm  with  authority  to  do 
anything  properly  pertaining  to  its  business.1 

In  a  trading  partnership  the  powers  of  the  partners  are 
most  extensive  and  extend  to  all  things  usually  done  in  the 
conduct  of  the  particular  business.  A  partner  in  a  trading 
partnership  may  buy  and  sell  goods  and  property  used  in  its 
business,2  make  any  ordinary  contract,3  borrow  money  and 

xi  Lindley  on  P.,  pp.  126,  127;  22  Am.  &  Eng.  Ency.  144  et  seq. ;  Cox  v. 
Hickman,  8  H.  L.  Cas.  268  (1860);  Rumsey  v.  Briggs,  139  N.  Y.  323  (1893),  and 
cases  cited;  Smith  v.  Sloan,  37  Wis.  285  (1875);  Haskinson  v.  Eliot,  62  Pa.  St. 
393  (1860);  Kitner  v.  Whitlock,  88  111.  513  (1878);  Union  Nat.  Bank  v.  Underbill, 
102  N.  Y.  336  (1886);  Davis  v.  Dodson,  29  L.  R.  A.  496  (1895). 

2  Irwin  v.  Williar,  no  U.  S.  499  (1884);  Boswell  v.  Green,  25  N.  J.  L.  390 
(1856);  Kenney  v.  Altwater,  77  Pa.  St.  34  (1874);  Crites  v.  Wilkinson,  65  Cal.  559 
(1884). 

8  Stillman  v.  Harvey,  47  Conn.  26  (1879);  Rovelsky  v.  Brown,  92  Ala.  522 
(1890). 

72 


RELATIONS    OF    PARTNERS.  73 

give  security  for  the  same  by  pledging  firm  property,4  give 
the  firm  note  or  accept  a  firm  draft,5  (see  §  57),  appoint 
agents  or  employ  assistants.6 

He  can  not,  however,  enter  an  appearance  or  confess 
judgment  in  the  firm  name,7  or  sell  or  mortgage  real  estate.8 
He  can  not  bind  the  firm  for  his  private  debt  9  nor  execute 
any  firm  agreement  under  seal.10  He  can  not  sell  firm  property 
to  himself.11  He  can  not  bind  the  firm  in  any  matters  not 
within  the  scope  of  the  partnership  business.12 

A  partner  in  a  professional  partnership  has  no  powers 
save  in  regard  to  matters  strictly  within  the  line  of  the  firm's 
professional  business.  A  note  or  other  obligation  executed 
by  a  member  of  such  a  partnership  would  not  bind  the  firm.13 
(See  §§  54,  55-) 

§  47.     Majority  Rule. 

The  majority  rule  in  a  partnership,  each  partner  being 
entitled  to  an  equal  voice  in  the  management  of  its  affairs 

4  Morris  v.  Maddox,  97  Ga.  575  (1895);  Gano  v.  Samuel,  14  Ohio  592  (1846); 
Smith  v.  Collins,  115  Mass.  388  (1874);  Palmer  v.  Scott,  68  Ala.  380  (1880);  Union 
Bank  v.  K.  C.  Bank,  136  U.  S.  223  (1890);  Long  v.  Slade,  121  Ala.  267  (1898); 
Settle  v.  Hargadin,  66  Fed.  Rep.  850  (1894). 

BBlodgett  v.  Weed,  119  Mass.  215  (1875);  Sedgewick  v.  Lewis,  70  Pa.  St. 
217  (1871);  Bank  v.  Alberger,  101  N.  Y.  202  (1886);  Rumsey  v.  Briggs,  139  N.  Y. 
323  (1895). 

6  Bennett   v.    Stickney,    17    Vt.    531    (1845). 

7  Hall  v.   Lanning,  91   U.    S.    160    (1875);   see,   though,   Kuhn  v.   Weil,   73   Mo. 
213    (1880). 

8  Brunson  v.    Morgan,   76  Ala.    593    (1884);   see,   though,   Chester  v.   Dickerson, 
54   N.   Y.    i    (1873);    Rovelsky  v.    Brown,   92   Ala.    522    (1890),   and   Long  v.    Slade, 
supra. 

8  Union   Nat.    Bank  v.   Underbill,    102   N.    Y.   336    (1886). 

10  George  on  P.,  §  95;  Mackay  v.  Bloodgood,  9  Johns.  (N.  Y.)  285  (1812); 
see,  though,  Smith  v.  Kerr,  3  N.  Y.  144  (1849). 

"•Comstock  v.    Buchanan,    57    Barb.    (N.    Y.)    127    (1864). 

12  Union  Nat.  Bank  v.   Underbill,   102  N.  Y.  336   (1886). 

13  Lee    v.    Nat.    Bank,    45    Kan.    8    (1890),    n    L.    R.    A.    238,    note;    Smith    v. 
Sloan,  37  Wis.  285    (1875);  Deardorf  v.  Thacher,   78  Mo.    128   (1883);  Davis  v.  Dod- 
son,    95    Ga.    718    (1895). 


74  PARTNERSHIP   RELATIONS. 

without  regard  to  the  amount  of  his  investment.14  The  rule 
in  stock  corporations  that  votes  are  cast  according  to  the 
relative  interests  of  the  shareholders  (see  §§  100,  103,  105) 
has  no  place  in  the  administration  of  partnership  affairs,  in 
which  the  majority  is  one  of  numbers,  not  of  interest. 

The  majority  may  decide  all  matters  of  business  policy 
and  all  questions  relating  to  the  general  conduct  of  the  busi- 
ness, and  when  and  to  what  extent  profits  are  to  be  divided, 
so  far  as  these  matters  are  not  prescribed  in  the  articles  of  co- 
partnership. The  majority  must,  however,  in  all  cases  rule 
fairly,  must  consult  with  the  minority  in  regard  to  any  pro- 
posed action  and  must  allow  the  minority  to  be  heard  in  dis- 
cussion of  the  same.15  They  can  not  apply  the  capital  to  new 
undertakings  outside  the  scope  of  the  partnership  business 
nor  can  they  seek  their  own  interest  as  against  the  common 
interest.16 

Where  the  partners  are  evenly  divided  concerning  any 
proposed  action  a  deadlock  results  and  those  who  would  do 
something  out  of  the  routine  are  at  a  disadvantage  as  com- 
pared with  those  who  are  satisfied  with  existing  conditions. 
In  a  partnership  of  two  no  change  can  be  made  and  no  new 
action  undertaken  unless  both  can  agree. 

Where  articles  exist  no  change  can  be  made  in  any  part 
save  by  unanimous  consent  of  all  the  members  of  the  part- 
nership.17 

§  48.     Mutual  Agency. 

This  is  perhaps  the  most  important  feature  of  the  partner- 

14  i  Lindley  on  P.,  p.  313  et  seq.;  Story  on  P.,  §  123;  i  Bates  on  P.,  §§  431, 
432,  4335  George  on  P.,  §§  62,  63,  64;  Kirk  v.  Hodgson,  3  Johns.  Ch.  (N.  Y.)  400 
(1818);  Zabriskie  v.  Railroad,  18  N.  J.  Eq.  178  (1867);  Johnson  v.  Dalton,  27  Ala. 
245  (1855);  Peacock  v.  Cummongs,  46  Pa.  St.  434  (1864). 

16  i    Lindley   on   P.,   p.    315. 

18  Moore  v.    Knott,    12    Oregon    260    (1885). 

17  i    Lindley   on   P.,   p.    315   et  seq.;    i    Bates   on   P.,    §    434;   Gansvoort   v.    Ken- 
nedy, 30  Barb.   (N.  Y.)   279   (1859);  Abbott  v.  Johnson,  32  N.   H.  9   (1855);  Zabriskie 
v.    Railroad,    18    N.    J.    Eq.    178    (1867). 


RELATIONS    OF    PARTNERS. 


75 


ship  relation.  The  mere  fact  of  partnership  makes  each  part- 
ner agent  for  the  firm  with  full  power  to  bind  it  by  any  con- 
tract properly  within  the  scope  of  the  partnership  business. 
(This  subject  is  treated  at  length  in  Chapter  XI,  Relations  to 
Third  Persons.) 

§  49.     Contract  Limitations. 

It  is  always  possible  to  restrict  the  powers  of  any  one  or 
of  all  the  partners  by  limitations  in  the  articles.  Such  restric- 
tions do  not,  however,  affect  third  persons,  unless  they  have 
had  notice  of  the  same.  In  the  absence  of  such  express  notice 
third  persons  may  deal  with  partners  on  the  assumption  that 
they  have  all  the  powers  usually  incident  to  the  relation,  and 
any  contracts  so  made  will  be  as  binding  upon"  the  partner- 
ship as  if  the  restrictions  did  not  exist.18  If  there  is  danger 
of  a  partner's  making  contracts  in  violation  of  the  partner- 
ship articles,  it  is  expedient  to  notify  those  with  whom  he  is 
likely  to  deal  of  the  restriction,  and  that  the  firm  will  not 
be  bound  by  any  obligations  made  in  violation  of  it. 

As  between  the  partners,  limitations  on  their  powers  are 
simply  contracts,  and  if  any  partner  violates  them,  his  asso- 
ciates may  dissolve  the  partnership,  and  the  offending  part- 
ner will  be  held  personally  liable  for  any  damages  arising  from 
his  breach  of  contract.19  For  example,  a  trading  partnership 
might  stipulate  that  no  partner  should  sign  the  firm  note  for 
more  than  one  hundred  dollars,  unless  with  the  consent  of  his 
co-partners.  One  of  the  partners  in  some  dealing,  within  the 
legitimate  scope  of  the  firm  business,  might  give  its  note  for 
one  thousand  dollars  to  some  person  who  was  ignorant  of 
the  restriction.  In  such  case,  the  partnership  would  be  bound 

18  Hoskinson  v.  Eliot,  62  Pa.  St.  393   (1869);  Magovern  v.  Robertson,  116  N.  Y. 
61    (1889);   Ontario  Bank  v.   Hennessey,  48  N.   Y.    545    (1872). 

19  2    Bates    on    P.,    §§    761,    780;    Dart    v.    Laimbeer,    107    N.    Y.    664    (1887); 
Bagley  v.    Smith,    10   N.    Y.   489    (1853). 


76  PARTNERSHIP   RELATIONS. 

by  the  note,  but  the  offending  partner  would  be  personally 
liable  to  his  associates  for  any  damage  resulting  and  such 
breach  of  the  articles  would  be  sufficient  cause  for  a  dissolu- 
tion of  the  firm.  (See  §  56.) 

§  50.     Arbitration  of  Differences. 

It  is  not  unusual  in  partnership  articles  to  provide  a 
clause  to  the  effect  that  in  the  event  of  any  difference  in  re- 
gard to  the  application  of  the  articles  or  in  managing  the 
affairs  of  the  partnership  or  in  winding  up  on  dissolution,  the 
matter  shall  be  settled  by  arbitration.  (See  Form  31.) 

The  difficulty  with  such  arrangements  is  that  men  willing 
to  agree  to  arbitration  to  settle  their  difficulties  are  generally 
able  to  arrive  at  some  compromise  without  arbitration,  and 
when  they  can  not  do  this  they  usually  do  not  feel  like  sub- 
mitting to  anything  save  the  compulsion  of  a  court.  Never- 
theless, it  is  always  expedient  to  insert  this  provision,  as  it 
may  on  occasion  save  a  lawsuit  and  it  affords  a  ready  method 
to  settle  some  differences.  The  word,  also,  at  the  present  time, 
often  has  a  moral  effect  in  preventing  and  quieting  difficulties 
out  of  proportion  to  its  actual  workings.  Even  when  it  is 
omitted  from  the  articles,  the  proposal  to  settle  difficulties  by 
arbitration  may  always  be  made  and  will  sometimes  prevent 
an  open  rupture.  It  is  to  be  noted  that  courts  generally  sus- 
tain the  awards  made  by  arbitrators,,  unless  bad  faith  or  cor- 
ruption can  be  shown.20 

§  51.     The  Duty  of  Good  Faith. 

Partnership  is  practically  a  personal  relation,  and  those 
who  enter  it  are  expected  to  act  honestly  and  fairly  toward 
their  associates.  Anything  that  is  done  must  be  done  for  the 
common  good.  No  partner  may  seek  his  own  advantage  at 

20  Sweet  v.  Morrison,  116  N.  Y.  19  (1889);  Fudickar  v.  Ins.  Co.,  62  N.  Y. 
392  (1878);  Perkins  v.  Giles,  50  N.  Y.  229  (1872). 


RELATIONS    OF    PARTNERS.  77 

the  expense  of  his  associates,  nor  may  he  make  any  personal 
and  private  profit  out  of  a  transaction  in  the  line  of  the  part- 
nership business.21  All  transactions  must  be  for  the  common 
good,  and  in  important  matters  a  partner  should  consult  his 
associates  before  taking  action.22 

So  far  as  is  possible  the  courts  will  enforce  this  duty. 
A  partner  will  not  be  allowed  to  retain  an  unfairly  made 
profit,23  nor  to  compete  with  his  firm.  He  may,  unless  ex- 
pressly restricted  by  his  partnership  agreement,  carry  on  an 
independent,  non-competing  business  of  his  own,  provided 
that  it  does  not  interfere  with  his  duty  to  his  firm.  (See  §  52.) 
Any  profit  made  in  a  competing  business  or  in  a  business  that 
did  interfere  with  the  firm  business  would  be  held  to  have 
been  made  for  the  firm  and  his  associates  could  compel  him 
to  account  for  the  same.24  (See  §  66,  and  cases  cited.) 

§  52.     The  Right  to  Engage  in  Other  Business. 

Although,  as  has  just  been  said,  a  partner  may  not  en- 
gage in  any  enterprise  that  would  compete  with  the  business 
of  the  partnership,25  he  may,  in  the  absence  of  any  restriction 
in  the  articles,  engage  in  other  ventures  which  are  non-com- 
peting, and  may  give  to  them  time  which  might  have  been 
devoted  to  partnership  affairs.26  A  partner  may  also  use  in- 
formation acquired  by  him  in  the  partnership  business  in  his 

21  i  Lindley  on  P.,  p.  303  et  seq. ;  see  Am.  notes  by  Wentworth;  i  Bates  on 
P-,  §§  303,  304;  Mitchell  v.  Reed,  61  N.  Y.  123  (1874);  Densmore  Oil  Co.  v.  Dens- 
more,  64  Pa.  St.  43  (1870). 

23Yorks  v.   Tozer,   59  Minn.   78    (1894),  28  L.   R.  A.   86. 

23  Mitchell  v.  Reed,  61  N.  Y.  123  (1874);  Homes  v.  Gi'lman,  138  N.  Y.  369 
0893);  Emory  v.  Parrott,  107  Mass.  95  (1871). 

24Kimberly  v.  Arms,  129  U.  S.  512  (1888);  Todd  v.  Rafferty,  30  N.  J.  Eq. 
254  (1878);  Chapin  v.  Streeter,  124  U.  S.  360  (1888);  Pearce  v.  Ham,  113  U.  S. 
585  (1885). 

25  22  Am.  &  Eng.   Ency.    118;    i   Bates  on  P.,   §   306;   Kimberly  v.   Arms,  supra; 
Todd  v.   Rafferty,  supra. 

26  Wheeler    v.    Sage,    i    Wall.    518    (1864);    Belcher    v.    Whittemore,    134    Mass. 
330    (1883). 


78  PARTNERSHIP  RELATIONS. 

private  undertakings,  provided  these  latter  are  not  within  the 
scope  and  do  not  compete  with  the  business  of  the  firm.27 

To  avoid  trouble  of  this  kind  the  articles  should  provide 
that  each  partner  shall  give  his  whole  time  or  some  specified 
portion  of  his  time  to  the  partnership  affairs  and  should  pro- 
hibit the  partners  from  engaging  in  other  enterprises  if  it  is 
so  desired,  or  might  specify  in  what  other  undertakings  they 
may  engage.  (See  Form  13.) 

§  53.     Retirement  of  Partner. 

When  a  partner  dies  or  becomes  bankrupt  or  when  war 
is  declared  between  the  countries  to  which  the  respective  part- 
ners belong,  the  partnership  is  forthwith  terminated,  the  rela- 
tion of  mutual  agency  ceases  and  neither  a  partner  nor  the 
representative  of  a  partner  can  bind  the  partnership  nor  the 
property  or  estate  of  either  partner  further.  Nothing  can  be 
done  except  to  liquidate,  pay  debts  and  wind  up  the  partner- 
ship affairs.28  If  a  partner  becomes  insane,  the  partnership 
is  not  dissolved  until  the  fact  of  insanity  has  been  legally  de- 
termined, when,  upon  due  application  therefor,  a  decree  of 
dissolution  will  issue.29  (See  §  73.) 

If  a  partner  wishes  to  terminate  his  partnership  relations 
he  may  do  so  at  any  time  by  simply  giving  notice  to  the  mem- 
bers of  his  firm,  to  those  dealing  with  the  firm  and  to  the 
public  generally.  If  the  partnership  was  at  will,  or  for  no 
specified  time,  this  ends  the  relation,  both  as  among  the  parties 
themselves  and  as  to  the  general  public.  If,  however,  the  part- 
nership was  for  a  given  and  unexpired  term,  the  partner  may 
still  withdraw  as  he  can  not  be  compelled  to  remain,  but  if  he 
does  so  without  sufficient  cause  he  may  be  liable  in  damages 
to  his  associates  for  his  breach  of  the  partnership  contract. 

27  Latta  v.  Kilbourn,   150  U.   S.   524   (1893). 

28  Gray   v.    Green,    142    N.    Y.    316    (1894);    Robbing   v.    Fuller,    24    N.    Y.    570 
(1862). 

28  Kent   v.    West,    33    App.    Div.    (N.    Y.)    112    (1898). 


RELATIONS    OF    PARTNERS.  79 

After  giving  proper  public  notice  of  his  withdrawal,  the 
retiring  partner  is  no  longer  liable  for  the  future  transactions 
and  obligations  of  the  firm.  The  firm  may  continue  under  the 
same  name,  but  while  he  is  still  liable  for  the  obligations  con- 
tracted while  he  was  a  member  of  it,  he  can  be  held  for  noth- 
ing further.30  The  matter  of  notice  is,  however,  important, 
as  it  is  the  only  way  in  which  liability  for  the  future  obliga- 
tions of  the  firm  may  be  escaped. 

As  has  been  said,  a  dormant  partner  may  retire  without 
giving  notice,  save  to  his  associates  in  the  firm.  As  his  con- 
nection has  been  secret,  credit  has  not  been  given  to  the  part- 
nership by  reason  of  his  association  with  it,  and  he  can  retire 
in  the  same  unostentatious  manner  in  which  he  formed  the 
relation.31 

»>McElvey   v.    Lewis,    76    N.    Y.    373    (1879). 

81  2  Bates  on  P.,  §  608;  Phillips  v.  Nash,  47  Ga.  218  (1872);  Elmira,  etc.,  Co. 
v.  Harris,  124  N.  Y.  280  (1891);  Davis  v.  Allen,  3  N.  Y.  168  (1849)- 


CHARTER  XT. 
RELATIONS  TO  THIRD  PERSONS. 


§  54.     Doctrine  of  Mutual  Agency. 

In  a  partnership  each  partner  has  equal  authority  with 
the  others  and  is  held  to  be  the  agent  of  the  others,  and  of 
the  firm,  for  any  transactions  within  the  scope  of  the  partner- 
ship business.  Hence  each  partner  within  this  limit  is  bound 
by  the  acts,  the  contracts  and  even  the  frauds  of  his  associates, 
and  is  responsible  for  the  obligations  and  liabilities  so  created 
as  fully  as  if  he  had  himself  acted  or  contracted.1  This  pe- 
culiar feature  of  the  partnership  is  perhaps  the  most  important 
consequence  of  the  relation  and  occasionally  works  great  hard- 
ship to  individuals.  It  is,  however,  an  essential  feature,  which 
may  be  limited  by  proper  provision  therefor,  but  can  not  under 
any  conditions  be  wholly  avoided.  (See  §§  55,  56.)  In  a 
leading  case  on  this  subject,  Chief  Justice  Marshall  said : 

"When  then  a  partnership  is  formed  for  a  particular 
purpose,  it  is  understood  to  be  in  itself  a  grant  of  power 
to  the  acting  members  of  the  company  to  transact  its 
business  in  the  usual  way.  If  that  business  be  to  buy  and 
sell,  then  the  individual  buys  and  sells  for  the  company, 
and  every  person  with  whom  he  trades  in  the  way  of  its 
business  has  a  right  to  consider  him  as  the  company, 
whoever  may  compose  it.  It  is  usual  to  buy  and  sell  on 

xi  Lindley  on  P.,  p.  124;  George  on  P.,  §§  90  to  93;  Winship  v.  Bank  of 
U.  S.,  supra;  Cox  v.  Hickman,  8  H.  L.  Cas.  260  (1860);  Median  v.  Valentine,  145 
U.  S.  611  (1892);  Rumsey  v.  Briggs,  139  N.  Y.  323  (1893);  Chester  v.  Dickerson, 
54  N.  Y.  i  (1875);  Strang  v.  Bradner,  114  U.  S.  555  (1885). 

80 


RELATIONS    TO    THIRD    PERSONS.  8l 

credit;  and  if  it  be  so,  the  partner  who  purchases  on 
credit  in  the  name  of  the  firm  must  bind  the  firm.  This 
is  a  general  authority  held  out  to  the  world,  to  which 
the  world  has  a  right  to  trust.  The  articles  of  copart- 
nership are  perhaps  never  published.  They  are  rarely  if 
ever  seen,  except  by  the  partners  themselves.  The  stipu- 
lations they  may  contain  are  to  regulate  the  conduct  and 
rights  of  the  parties  as  between  themselves.  The  trad- 
ing world,  with  whom  the  company  is  in  perpetual  inter- 
course, can  not  individually  examine  those  articles,  but 
must  trust  to  the  general  powers  contained  in  all  partner- 
ships. The  acting  partners  are  identified  with  the  com- 
pany, and  have  power  to  conduct  its  usual  business  in  the 
usual  way."  Winship  v.  Bank  of  U.  S.,  5  Peters  529 

(1830. ' 

§  55.     Limits  of  Agency  Powers. 

In  the  absence  of  special  restrictions  on  the  agency  powers 
of  the  partners,  they  are  limited  only  by  the  scope  of  the  part- 
nership business  and  by  the  ordinary  limitations  of  the  powers 
of  agents.2  Thus,  under  his  general  powers,  a  partner  acting 
alone  may  bind  the  firm  in  any  matter  properly  within  its 
business  operations.  Under  the  rule  of  the  common  law  he 
could  not,  however,  bind  it  by  the  independent  execution  of  a 
deed,  bond  or  other  sealed  instrument,  though  well  within 
the  scope  of  the  partnership  business,  unless  specially  author- 
ized thereto  under  seal,  for  the  reason  that  an  agent  is  not 
competent  to  execute  a  sealed  instrument  except  when  he, 
himself,  is  authorized  thereto  under  seal.  This  doctrine  has, 
however,  been  relaxed  in  later  decisions  and  it  is  now  held 
that  a  partner  may  be  authorized  by  parol  to  execute  a  sealed 
instrument  for  his  firm  or  that  after  execution  such  an  instru- 
ment may  be  adopted  or  confirmed  verbally  by  the  other  mem- 
bers of  the  firm.3 

2  Irwin  v.   Williar,    no  U.    S.   499    (1884);   Union   Nat.   Bank  v.    Underbill,    102 
N.   Y.   336   (1886). 

3  Smith  v.    Kerr,   3   N.   Y.    144    (1849). 


82  PARTNERSHIP   RELATIONS. 

The  power  of  a  partner  as  an  agent  of  the  firm  being 
restricted  by  the  scope  of  the  firm  business,  it  follows  that  the 
mutual  agency  of  partnership  will  vary  widely  according  to 
the  nature  of  the  particular  firm.  In  a  professional  partner- 
ship there  would  usually  be  no  buying  or  selling,  and  promis- 
sory notes  and  contracts  might  not  come  within  the  scope  of 
the  firm  business  at  all.  In  such  case  the  powers  of  the  part- 
ners as  agents  would  be  very  restricted.  In  an  ordinary  trad- 
ing partnership,  on  the  other  hand,  the  power  will  extend  to 
many  things.  In  such  a  firm  the  partner  may  buy,  sell,  give 
notes  or  sign  contracts  freely,  and  so  long  as  he  does  not  go 
clearly  beyond  the  scope  of  the  business  his  associates  will  be 
bound  by  his  acts.  ( See  §  46. ) 

If  a  partner  does  step  beyond  the  proper  limits  of  the  firm 
business  his  acts  are  of  no  effect  so  far  as  the  firm  is  con- 
cerned. If  the  business  does  not  require  notes  or  contracts, 
any  such  instrument  signed  by  a  partner  with  the  firm  name 
may  be  rejected  or  accepted  at  discretion  by  the  firm.  If  re- 
jected, it  can  not  be  enforced  against  the  firm,  though  the 
partner  signing  would  be  liable. 

§  56.     Limitation  in  Articles. 

Any  desired  restrictions  on  the  agency  power  of  part- 
ners may  be  incorporated  in  the  partnership  agreement.  This 
is  often  done,  the  restrictions  varying  in  extent  and  nature. 
Not  infrequently  it  is  stipulated  thc't  particular  partners  shall 
have  no  power  whatsoever  in  the  management  of  the  firm 
business.  (See  §  49.) 

Such  restrictions  do  not,  in  themselves,  deprive  the  part- 
ner of  the  powers  sought  to  be  denied  him,  and  are  effective 
only  when  the  outside  parties  with  whom  the  firm  has  deal- 
ings have  received  notice  of  their  existence,  and  that  the  firm 
will  not  be  bound  by  contracts  so  prohibited.  A  partner  may 
have  signed  an  agreement  under  which  he  is  apparently  de- 
prived of  all  power  to  act  for  the  firm,  but  if,  notwithstanding, 


RELATIONS    TO    THIRD    PERSONS.  83 

he  contracts  with  third  parties  who  have  no  knowledge  of  the 
restrictions,  such  contract  is  as  binding  on  the  firm  as  if  made 
by  any  other  partner.4  The  other  partners  may  bring  suit 
against  the  offending  partner  for  damages  for  breach  of  con- 
tract, or  for  a  dissolution  of  the  compact  of  partnership,  but 
they  can  not  disclaim  and  avoid  his  contract.  If,  however, 
in  such  case  the  third  parties  had  been  notified  of  the  restric- 
tions on  the  power  of  the  contracting  partner,  and  that  the 
firm  would  not  be  responsible  for  contracts  in  violation  of 
them,  the  contract  would  be  void,  or.  voidable  at  the  option  of 
the  firm. 

When  the  usual  powers  of  partners  are  restricted  by 
agreement,  any  third  parties  dealing  with  the  firm  should, 
therefore,  be  notified  in  the  name  of  the  firm  of  such  restric- 
tions ;  also  that  the  firm  will  not  be  responsible,  for  any  con- 
tract made  in  violation  of  the  notified  restrictions.5  Such 
notice  should  be  in  writing  and  be  served  on  the  parties  to  be 
notified  in  person  or  by  mail. 

In  a  limited  partnership  (see  §§  9,  36),  the  partner  whose 
liability  is  limited  can  take  no  part  in  the  management.  In 
such  case  the  limitations  on  his  powers  and  the  general  nature 
of  the  partnership  are  notified  to  third  parties  under  the  pro- 
visions of  the  laws  regulating  such  partnership.  This  is 
usually  done  by  publication  or  by  filing  the  partnership  articles 
in  some  public  office,  as  may  be  prescribed.  This  is  then  suffi- 
cient notification  to  third  parties  and  they  deal  with  the  part- 
nership thereafter  subject  to  the  published  conditions. 

§  57.     Partnership  Notes. 

Partnership  notes  as  firm  obligations  come  under  the 
general  rules  of  mutual  agency.  Every  member  of  a  trading 

4Winship  v.  Bank  of  the  United  States,  5  Peters  529  (1831);  Kimbro  v. 
Bullitt,  63  U.  S.  256  (1859);  Magovern  v.  Robertson,  116  N.  Y.  61  (1889);  Ontario 
Bank  v.  Hennessey,  48  N.  Y.  545  (1872);  Hoskinson  v.  Eliot,  62  Pa.  St.  393  (1869); 
Rice  v.  Jackson,  171  Pa.  St.  89  (1895);  Stimson  v.  Whitney,  130  Mass.  591  (1881). 

5  i  Lindley  on  P.,  p.   174  et  seq.:  Bromley  v.  Elliott,  38  N.  H.  287   (1859). 


84  PARTNERSHIP   RELATIONS. 

firm  has  a  right  to  make  and  endorse  notes,  and  to  make,  ac- 
cept and  endorse  drafts  and  other  commercial  paper  in  the  firm 
name.6  He  may  use  this  power  fraudulently,  or  for  his  own 
purposes,  but  unless  the  payee  or  owner  had  this  knowledge 
brought  home  to  him,  he  can  hold  the  firm  on  the  note.  To 
obligate  the  firm  by  negotiable  paper  is  within  the  usual  scope 
of  a  trading  partnership  business,  and  the  abuse  of  the  power 
is  one  of  the  risks  of  the  partnership  relation. 

In  the  case  of  a  non-trading  partnership,  however,  it  is 
not  customary  for  the  partners  to  bind  the  firm  by  issuing 
negotiable  paper,  and  unless  it  could  be  shown  ( i )  that  the 
partner  was  authorized  to  issue  commercial  paper,  or  (2)  that 
in  the  particular  business  it  was  in  accordance  with  usage  for 
the  partnership  to  bind  itself  in  this  manner,  the  firm  would 
not  be  bound.7  For  instance,  in  a  partnership  of  lawyers  or 
physicians  there  would  seem  to  be  no  business  reason  for  issu- 
ing commercial  paper,  and  therefore,  generally  speaking,  the 
firm  would  not  be  held  liable  on  such  obligations  signed  by  one 
partner.8 

It  is  not  uncommon  to  limit  in  the  partnership  articles 
this  power  of  binding  the  firm,  but  this  is  not  of  itself  suffi- 
cient to  relieve  the  firm  of  its  liability.  If  it  were  a  com- 
mercial partnership  and  one  of  its  partners  issued  its  paper 
for  value  to  an  innocent  holder  who  had  no  knowledge  of  the 
restriction,  the  firm  would  be  bound.  Not  only  must  the 
power  of  binding  the  firm  be  restricted,  but  third  parties  must 
have  notice  that  it  is  so  restricted,  and  that  the  firm  will  not 
be  bound  by  any  action  exceeding  these  limitations.  (See 
§§  49>  56-)  A  person  having  a  claim  against  a  partner  could 
not  safely  take  in  settlement  a  note  signed  by  him  with  the 
partnership  name,  as  making  such  a  note  would  be  clearly 

8  i    Bates  on   P.,   §   341;    George  on   P.,    §    90. 

'Dowling  v.   Nat.   Exch.    Bank,    145  U.    S.    512    (1892);    Story  on   P.,   §    1023. 

8  Smith   v.    Sloan,   37   Wis.    285    (1875). 


RELATIONS    TO    THIRD    PERSONS.  85 

beyond  the  ordinary  authority  of  the  partner,  but  such  a  note 
after  it  was  passed  on  for  value  to  an  innocent  holder  would 
bind  the  firm.9  An  endorsement  of  the  firm  name  by  a  part- 
ner on  the  note  of  a  third  party,  outside  of  the  scope  of  part- 
nership business,  would  be  void.10 

§  58.     Purchase  and  Sale  of  Personal  Property. 

A  partner  has  full  power  to  buy  and  sell  personal  prop- 
erty within  the  scope  of  the  partnership  business,  and  the  firm 
will  be  bound  by  his  transactions.11  This  power  does  not  ex- 
tend to  the  sale  of  property  used  by  the  firm  for  carrying  on 
the  firm  business  as  such  a  sale  would  tend  to  destroy  the  part- 
nership business.12  For  the  same  reason  one  partner  has  no 
power  to  sell  the  entire  assets  of  the  partnership.13  Where 
a  sale  is  to  be  made  of  the  stock  in  trade;  or  of  the  entire 
assets,  or  of  fixtures  or  furniture,  all  of  the  firm  should  join 
in  the  assignment.  As  to  power  of  a  partner  to  assign  for 
benefit  of  creditors,  see  §  60,  Assignment  for  Benefit  of 
Creditors. 

A  partner  has  likewise  power  to  pledge  and  mortgage 
personal  property  of  the  firm  for  the  legitimate  purposes  of 
the  partnership,  but  not  to  such  an  extent  as  to  terminate  the 
partnership  business.14 

§  59.     Purchase  and  Sale  of  Real  Property. 

A  partnership  may  be  formed  by  either  written  or  verbal 
contract  for  the  express  purpose  of  buying  and  selling  real 

9  Smyth  v.  Straden,  4  Howard  403  (1846);  Union  Nat.  Bank  v.  Underbill, 
102  N.  Y.  336  (1886);  Bank  v.  Savery,  82  N.  Y.  291  (1880);  Atlas  Bank  v.  Savery, 
133  Mass.  75  (1879). 

"Bank  v.  Alden,    129   U.    S.   372    (1888). 

11  i    Bates  on  P.,   §   401 ;   also  cases  in  note  2,   Chapter  X. 

12  i    Bates   on   P.,    §    401;    George  on  P.,    §    99. 

"Bender  v.  Hemstreet,  12  Misc.  (N.  Y.)  620  (1895);  Patterson  v.  Hare, 
4  App.  Div.  (N.  Y.)  319  (1896);  Sloan  v.  Moore,  37  Pa.  St.  217  (1860). 

14  Osborne  v.  Barge,  29  Fed,  Rep.   725   (1885);  also  cases  in  note  4,  Chapter  X. 


86  PARTNERSHIP   RELATIONS. 

estate.15  (See  §  24.)  In  such  cases  the  realty  is  treated  for 
all  partnership  purposes  as  if  it  were  personalty.  Likewise  in 
other  cases  where  real  property  is  purchased  with  partnership 
funds  for  partnership  purposes,  it  is  treated  as  personalty,  is 
held  subject  to  the  claims  of  creditors  and  co-partners,  and, 
until  these  are  fully  satisfied,  is  liable  neither  to  the  claims  of 
heirs  nor  to  dower  rights.16 

Since  a  partnership  is  not,  like  a  corporation,  a  legal 
entity,  land  can  not  be  held  in  the  firm  name,17  but  must  be 
held  either  in  the  names  of  all  the  partners,  or  in  the  name  of 
one  or  more  who  will  be  considered  trustees  for  the  partner- 
ship. (§  44.)  When  held  in  the  name  of  all  the  partners 
it  is  often  difficult  to  determine  whether  they  hold  it  as  part- 
nership property,  or  simply  as  tenants  in  common.  If  the  lat- 
ter is  the  case,  the  land  is  subject  to  the  usual  incidents  of 
real  property.18 

If  partners  own  land  in  common,  each  may  sell  his  un- 
divided share,  and  the  purchaser  will  take  as  tenant  in  com- 
mon with  the  others.  Any  one  of  them  can  at  pleasure  have 
partition  by  taking  the  necessary  legal  steps,  and  the  interest 
of  each  is  subject  to  all  the  usual  incidents  attaching  to  real 
property.19 

If,  however,  the  land  is  held  as  partnership  property, 
partition  can  not  be  had,  nor  may  individual  shares  be  sold 
or  separated.  If  a  partner  tries  to  sell  his  interest,  the  pur- 

1B  Chester  v.  Dickerson,  54  N.  Y.  i  (1873);  Note  in  28  L.  R.  A.  86;  see  cases 
cited  in  §  24. 

"Greenwood  v.  Marvin,  in  N.  Y.  423  (1888);  Fairchild  v.  Fairchild,  64 
N.  Y.  471  (1876);  Columb  v.  Read,  24  N.  Y.  505  (1862);  Buchan  v.  Sumner,  2 
Barb.  Ch.  (N.  Y.)  164  (1847);  Riddle  v.  Whitehill,  135  U.  S.  621  (1889);  Allen  v. 
Withrow,  no  U.  S.  119  (1883);  Shearer  v.  Shearer,  98  Mass.  107  (1867);  Moore 
v.  Wood,  171  Pa.  St.  365  (1895). 

"Parsons  on  P.,  §  366;  Byam  v.  Bickford,  140  Mass.  31  (1885);  Tidd  v. 
Rines,  26  Minn.  201  (1879). 

"Thompson  v.  Bowman,  73  U.  S.  316  (1867);  Coles  v.  Coles,  15  Johns. 
(N.  Y.)  159  (1818);  Ware  v.  Owens,  42  Ala.  212  (1868). 

18  Gerard  on  Titles  to   Real   Estate,   pp.   300,   304. 


RELATIONS    TO    THIRD    PERSONS.  87 

chaser  only  takes  right  to  the  surplus  remaining  after  wind- 
ing up  the  business  and  satisfying  all  partnership  claims.20 

Although  a  partnership  can  not  hold  real  property  in  the 
firm  name,  if  land  were  so  deeded  to  a  partnership  it  would 
be  sustained  as  a  contract  to  convey  or  as  conveying  to  them 
as  tenants  in  common,  provided  the  individuals  composing 
the  firm  could  be  identified  from  the  name  given  in  the  deed. 
If  one  member  of  the  firm  could  be  thus  identified,  he  would 
take  and  hold  as  trustee  for  his  associates.21  One  partner  can 
not  make  a  valid  deed  to  real  estate  held  by  the  firm,  but  he 
can  in  a  proper  case,  that  is,  when  such  contract  is  within  the 
scope  of  the  partnership  business,  make  a  contract  to  convey 
which  the  courts  will  compel  the  firm  to  perform.22  Like- 
wise in  a  similar  case,  a  partner  can  make  a  valid  contract 
for  the  purchase  of  land  by  the  firm.23 

Where  real  property  is  to  be  held  by  a  partnership  it 
should  be  conveyed  to  the  individual  members,  with  a  state- 
ment in  the  conveyance  that  the  transferees  are  partners  under 
a  firm  name  and  take  the  property  conveyed  as  partnership 
property.  In  case  of  subsequent  transfer  all  should  join  in 
like  manner. 

§  60.     Assignment  for  Benefit  of  Creditors. 

Although  a  partner  has  full  power  to  do  anything  neces- 
sary for  the  conduct  of  the  firm  business,  he  has  no  power  to 
do  anything  which  will  terminate  this  business.  Hence  he 
has  no  right  to  make  a  general  assignment  to  a  trustee  for 
the  benefit  of  creditors.24  This  can  only  be  done  by  all  the 

20  z  Bates  on  P.,   §§   927,    1098. 

21  Sage  v.    Sherman,   2   N.   Y.   417    (1849);   Holmes  v.   Jarrett,   7   Heisk   (Tenn.) 
506    (1872);   Tidd   v.    Rines,    26    Minn.    201    (1879);    Menage   v.    Burke,   43    Minn.    211 
(1890). 

22  Thompson  v.   Bowman,   73   U.    S.   316    (1867). 

23  Offut  v.    Scott,  47  Ala.    104    (1872);   Sage  v.    Sherman,  supra. 

24  Welles    v.    March,    30    N.    Y.    344    (1864);    Fox    v.    Curtis,    176    Pa.    St.    52 
(1896);  Osborne  v.  Barge,  39  Fed.  Rep.  725   (1887);  Emerson  v.  Senter,  118  U.   S.  3 
(1886). 


88  PARTNERSHIP   RELATIONS. 

partners  acting  together.  If,  however,  one  partner  makes 
such  an  assignment,  the  others  may,  if  they  choose,  ratify  his 
action,  thus  making  the  unauthorized  assignment  valid.25 
In  case  a  partner  has  absconded,  or  for  any  other  reason  can 
not  be  reached,  the  remaining  members  of  the  firm,  acting  to- 
gether, can  make  a  valid  assignment.26 

In  contradiction  to  the  general  rule  that  one  partner, 
acting  independently,  can  not  make  a  valid  assignment,  it  has 
been  held  in  New  York  that  he  may  transfer  the  partnership 
effects  directly  to  a  creditor  of  the  firm,  without  the  knowledge 
or  consent  of  his  associates,  and  the  courts  will  sustain  his 
action.27 

It  must  be  said,  however,  that  since  the  passage  of  the 
present  National  Bankruptcy  Law,  this  general  subject  of  as- 
signment is  of  little  practical  importance,  as  any  assignment 
made  by  a  firm  when  insolvent  would  be  an  act  of  bankruptcy, 
and  any  creditor  aggrieved  could  proceed  under  the  National 
Bankruptcy  Act,  which  defines  the  specific  "acts  of  bank- 
ruptcy" as  follows: 

"Acts  of  bankruptcy  by  a  person  shall  consist  of 
his  having  (i)  conveyed,  transferred,  concealed,  or  re- 
moved, or  permitted  to  be  concealed  or  removed,  any 
part  of  his  property  with  intent  to  hinder,  delay,  or  de- 
fraud his  creditors,  or  any  of  them;  or  (2)  transferred, 
while  insolvent,  any  portion  of  his  property  to  one  or 
more  of  his  creditors  with  intent  to  prefer  such  creditors 
over  his  other  creditors;  or  (3)  suffered  or  permitted, 
while  insolvent,  any  creditor  to  obtain  a  preference 
through  legal  proceedings,  and  not  having,  at  least  five 
days  before  a  sale  or  final  disposition  of  any  property 
affected  by  such  preference  vacated  or  discharged  such 

2&Adee  v.    Cornell,    93    N.    Y.    572    (1883). 

26  Sullivan  v.  Smith,  15  Neb.  476  (1884);  Williams  v.  First,  27  Minn.  255 
(1880). 

^Bulger  v.  Rosa,  119  N.  Y.  459  (1890);  Mabbett  v.  White,  12  N.  Y.  442 
(1855);  Graser  v.  Stellwagen,  25  N.  Y.  315  (1862);  Van  Brunt  v.  Applegate,  44 
N.  Y.  544  (1871). 


RELATIONS    TO    THIRD    PERSONS.  89 

preference;  or  (4)  made  a  general  assignment  for  the 
benefit  of  his  creditors,  or,  being  insolvent,  applied  for 
a  receiver  or  trustee  for  his  property  or  because  of  in- 
solvency a  receiver  or  trustee  has  been  put  in  charge  of 
his  property  under  the  laws  of  a  State,  of  a  Territory,  or 
of  the  United  States;  or  (5)  admitted  in  writing  his 
inability  to  pay  his  debts,  and  his  willingness  to  be 
adjudged  a  bankrupt  on  that  ground. 

"A  petition  may  be  filed  against  a  person  who  is  in- 
solvent and  who  has  committed  an  act  of  bankruptcy 
within  four  months  after  the  commission  of  such  act. 
Such  time  shall  not  expire  until  four  months  after  (i) 
the  date  of  the  recording  or  registering  of  the  transfer 
or  assignment  when  the  act  consists  in  having  made  a 
transfer  of  any  of  his  property  with  intent  to  hinder, 
delay  or  defraud  his  creditors,  or  for  the  purpose  of  giv- 
ing a  preference  as  hereinbefore  provided,  or  a  general 
assignment  for  the  benefit  of  his  creditors,  if  by  law  such 
recording  or  registering  is  required  or  permitted,  or,  if 
it  is  not,  from  the  date  when  the  beneficiary  takes  notor- 
ious, exclusive  or  continuous  possession  of  the  property 
unless  the  petitioning  creditors  have  received  actual  notice 
of  such  transfer  or  assignment."  §  3,  (a)  and  (b)  Na- 
tional Bankruptcy  Act  of  1898  as  amended  by  the  Act 
of  1903.  (See  also  quotations  in  §  74.) 

§  61.     Liability  to  Third  Persons. 

Where  a  partnership  is  admitted  or  proved,  and  where 
a  contract  within  the  scope  of  the  partnership  business  has 
been  made  by  a  partner,  each  individual  partner  is  liable,  and 
in  case  judgment  is  had  against  the  firm  execution  may  be 
levied  on  the  firm  property,  or  on  the  separate  property  of 
any  one  of  the  partners.  That  is,  the  creditors  may  take 
judgment  against  all  the  partners  and  may  then  proceed  to 
collect  it  from  firm  assets  or  from  the  property  of  any  one  or 
more  of  them,  leaving  the  partners  to  adjust  the  matter  be- 
tween themselves  as  best  they  may.28 

28Judd,   etc.,   Co.   v.    Hubbell,   76   N.    Y.    543    (1879). 


90  PARTNERSHIP   RELATIONS. 

"Each  partner  is  liable  in  solido  for  all  debts  of  the 
firm.  This  does  not  mean  that  one  partner  can  be  sued 
alone,  which  depends  upon  whether  the  liability  is  joint 
or  several,  but  means  that  the  entire  fortune  of  each  part- 
ner, not  only  that  embarked  in  the  business,  but  what- 
ever he  may  own,  is  liable  to  make  good  the  firm's  debts, 
whether  the  other  partners  are  able  to  contribute  or  not; 
and  regardless  of  the  amount  or  proportion  of  his  inter- 
est in  the  firm,  whether  it  be  large  or  small,  the  conse- 
quence is  the  same."  i  Bates  on  P.,  §  457. 

A  partner  is  liable  in  damages  for  the  torts,  frauds  and 
wrongdoing  of  his  partner  within  the  scope  of  the  partnership 
business,  but  usually  he  will  not  be  held  criminally  liable.29 

In  connection  with  this  liability  to  third  persons,  it  usually 
becomes  necessary  to  prove  the  existence  of  a  partnership,  and 
the  rules  considered  in  Chapter  I  of  this  work  apply.30  This 
important  matter  was  summed  up  by  the  Supreme  Court  of 
the  United  States  as  follows : 

"It  may  perhaps  be  doubted  whether  any  more  pre- 
cise general  rule  can  be  laid  down  than  that  those  per- 
sons are  partners  who  contribute  either  property  or  money 
to  carry  on  a  joint  business  for  their  common  benefit, 
and  who  own  and  share  the  profits  thereof  in  certain 
proportions.  If  they  do  this,  the  incident  or  conse- 
quence follows,  that  the  acts  of  one  in  conducting  the 
partnership  business  are  the  acts  of  all ;  that  each  is  agent 
for  the  firm  and  for  the  other  partners ;  that  each  receives 
part  of  the  profits  as  profits,  and  takes  part  of  the  fund 
to  which  the  creditors  of  the  partnership  have  a  right  to 
look  for  the  payment  of  their  debts;  that  all  are  liable 
as  partners  upon  contracts  made  by  any  of  them  within 
the  scope  of  the  partnership  business;  and  that  even  an 
express  stipulation  between  them  that  one  shall  not  be 

29  Williams   v.    Hendricks,    115    Ala.    277    (1897);    see    note    on   this    case    in    41 
L.  R.  A.  650;  Strang  v.  Bradner,  114  U.  S.  555  (1885);  Loomis  v.  Barker,  69  111.  360 
(1873)- 

30  See  cases  cited  in  notes  to  Chapter  IV;   also  Bates  on  P.,   Chap.   II;   George 
on  P.,   §§   9   to    17   inclusive;   Mechem   on   P.,   Chap.    V. 


RELATIONS   TO   THIRD   PERSONS.  91 

so  liable,  though  good  between  themselves,  is  ineffectual 
as  against  third  persons.  And  participating  in  profits  is 
presumptive,  but  not  conclusive,  evidence  of  partnership." 
Meehan  v.  Valentine,  145  U.  S.  611  (1891). 

A  dormant  partner  may  be  held  if  discovered  (see  §  37), 
and  anyone  who  has  allowed  himself  to  be  held  out  as  a  part- 
ner, though  not  really  one,  will  be  held  to  a  partner's  lia- 
bility.31 

In  regard  to  those  uncertain  contracts  by  which  men  ex- 
pose themselves  to  partnership  liability  when  they  have  no  in- 
tention of  becoming  partners,  it  should  be  remembered  that 
prevention  by  a  properly  drawn  contract  is  not  difficult,  and 
that  a  small  expenditure  in  counsel  fees  for  drafting  a  safe 
contract  at  the  beginning  may  save  a  later  disastrous  liability. 

81McGowan    v.    Am.    Pressed    Tan-Bark    Co.,    121    U.    S.    575     (1887);  Oppen- 

heimer  v.  Clemmons,   18  Fed.   Rep.  886   (1883);  Bissell  v.  Ward,  129  Mo.  439  (1895); 

Sylvester    Co.    Bank    v.    Boffenmeyer,    162    Pa.    St.    559    (1894);    Lothrop    v.  Adams, 

133   Mass.   471    (1882);    Strang  v.    Bradner,    114   U.    S.    555    (1885);    U.    S.   v.  Baxter, 
46  Fed.   Rep.   350   (1891);   Wise.   Central  R.   Co.  v.   Ross,   142  111.   9   (1892). 


CHAPTER  XII. 
DIVISION   OF  PROFITS, 


§  62.     Usual  Rule. 

The  sharing  of  profits  is  an  essential  feature  and  the 
usual  object  of  a  partnership.  Ordinarily  these  profits  are 
ascertained  by  deducting  the  current  expenses  from  the  cur- 
rent receipts,  or  gross  profits,  or,  on  dissolution  or  any  general 
accounting,  by  deducting  the  firm  indebtedness  and  the  original 
partnership  investment  from  the  total  partnership  assets.1 

"In  determining  the  profits  of  a  business  the  court 
instructed  the  jury  that  they  should  first  ascertain  the 
gross  receipts  and  the  stock  on  hand  at  its  cost  price, 
less  its  depreciation  and  deduct  therefrom  the  expendi- 
tures and  the  debts.  This  we  think  was  right."  Thayer 
v.  Augustine,  55  Mich.  187  (1884). 

As  there  is  often  room  for  differences  of  opinion  as  to 
what  constitutes  profits,  it  is  well  to  define  in  the  articles  of 
association  how  they  are  to  be  determined.  (See  Form  8.) 
The  articles  should  also  specify  the  times  at  which  profits  are 
to  be  apportioned ;  if  they  fail  to  do  so,  this  point  must  be  de- 
cided by  agreement,  or,  when  there  is  an  odd  number  of  part- 
ners, by  the  majority.  (See  Form  9.) 

As  already  stated  (see  §  39),  in  the  absence  of  a  special 
agreement  otherwise,  the  common  law  rule  governs  the  divi- 
sion of  both  profits  and  losses.  Under  this  the  partners  must 

xi  Lindley  on  P.,  p.  394  et  seq.;  Fuller  v.  Miller,  105  Mass.  103  (1870); 
Braun's  Appeal,  105  Pa.  St.  414  (1884). 

92 


DIVISION    OF    PROFITS.  93 

share  equally,  without  any  variation,  or  any  allowance  for 
the  greater  value  of  services  rendered,  the  greater  amount  of 
time  devoted,  or  the  greater  investment  made  by  one  or  the 
other  of  the  partners.2  Some  modification  of  this  .rule  may 
occur  if  one  partner  wilfully  neglects  the  business,3  but  other- 
wise unless  set  aside  by  agreement  it  is  invariable.  If  it  is 
desired  to  modify  this  rule  and  to  make  the  shares  of  profits 
or  loss  proportionate  to  investment,  to  time  given  or  to  com- 
parative skill,  a  specific  stipulation  to  that  effect  must  be  put 
in  the  articles  of  agreement.  Unless  this  is  done  the  common 
law  rule  will  hold  and  the  partners  will  share  equally. 

§  63.     Contract  Stipulations. 

When  a  partnership  is  formed,  any  desired  variation  of 
the  common  law  rule  of  profit  sharing  may  be  arranged.4  As 
equality  of  profit  sharing  among  partners  would  in  many 
cases  be  obviously  inequitable,  such  variations  are  common. 
Each  partner's  interest  in  profits  is  then  specified  and  is  usually 
determined  by  the  amount  of  his  investment  and  the  general 
value  of  his  services  to  the  firm. 

If  one  partner  makes  the  greater  investment,  this  should 
be  recognized,  either  by  interest  on  the  excess  investment  or 
by  a  larger  share  of  profits.  If  one  partner  has  greater  skill 
or  experience  in  the  particular  line  of  business  this  is  even 
more  important  than  excess  investment,  and  must  receive  due 
recognition.  If  one  partner  is  to  give  his  entire  time  and 
attention,  while  the  others  give  but  a  portion  of  their  time  or 

"2  Lindley  on  P.,  p.  774  and  notes;  Parsons  on  P.,  §§  172,  173;  2  Bates  on 
P-,  §§  770,  781;  Bradford  v.  Kimberly,  3  Johns.  Ch.  431  (1818);  Evans  v.  Warner, 
20  Aop.  Div.  (N.  Y.)  230  (1897);  9  L.  R.  A.  424  and  note;  Whitcomb  v.  Converse, 
119  Mass.  38  (1875);  Robinson  v.  Anderson,  20  Beav.  98  (1885);  Roach  v.  Perry, 
16  111.  37  (1854). 

3  i  Lindley  on  P.,  p.  381;  Denver  v.  Roane,  99  U.  S.  355  (1879);  Airey  v. 
Borham,  29  Beav.  620  (1861). 

*  Paine  v.  Thacher,  25  Wend.  (N.  Y.)  450  (1841);  Bradford  v.  Kimberly, 
3  Johns.  Ch.  431  (1818);  Welsh  v.  Canfield,  60  Md.  469  (1883). 


94  PARTNERSHIP   RELATIONS. 

are  at  liberty  to  engage  in  outside  undertakings,  this  also 
would  bear  directly  upon  the  division  of  profits.  Other  con- 
siderations will  also  frequently  enter  in  and  the  division  of 
partnership  profits  becomes  a  matter  of  difficult  adjustment. 

It  is,  however,  even  more  important  that  the  agreement 
should  be  certain  than  that  exact  justice  should  be  secured  in 
the  apportionment  of  profits.  Where  the  conditions  are  at  all 
involved  it  is  impossible  to  arrange  any  division  of  profits 
that  shall  be  absolutely  fair,  but  the  matter  should  be  settled 
specifically  in  some  way  in  the  partnership  agreement.  Un- 
certainty is  a  far  greater  evil  than  is  some  slight  and  unavoid- 
able inequity  of  division  of  profits.  (See  Forms  9  and  39  for 
examples  of  unequal  divisions  of  profits.) 

§  64.     Salaries  for  Services. 

Unless  by  express  agreement,  no  partner  has  any  claim 
for  extra  compensation  for  his  services,  no  matter  how 
onerous.5 

Where  the  time  devoted  to  the  business  by  the  several 
partners  is  not  the  same  or  where  one  partner  has  some  special 
skill  and  ability  above  the  others,  these  differences  may  be 
fairly  adjusted  either  by  providing  in  the  partnership  articles 
for  a  differing  proportion  of  profits  for  the  respective  partners, 
or,  which  is  perhaps  a  better  way,  by  allowance  of  salaries 
proportioned  to  the  value  of  the  services  rendered.6 

The  plan  of  salaries  drawn  from  the  firm  business  for 
partners  has  .several  advantages.  It  not  only  affords  a  ready 
means  of  adjusting  the  varying  claims  of  the  partners  upon 

5  i  Lindley  on  P.,  p.  380;  Denver  v.  Roane,  99  U.  S.  355  (1879);  Evans  v. 
Warner,  20  App.  Div.  (N.  Y.)  230  (1897);  Roach  v.  Perry,  16  111.  37  (1854);  Drew 
v.  Ferson,  22  Wis.  620  (1868);  Burgess  v.  Badger,  124  111.  288  (1888);  Major  v. 
Todd,  84  Mich.  85  (1890);  Godfrey  v.  White,  43  Mich.  171  (1880);  Dunlop  v.  Wat- 
son, 124  Mass.  305  (1878);  Pierce  v.  Pierce,  89  Mich.  233  (1891);  9  L.  R.  A.  424 
and  note;  Bromley  v.  Elliot,  38  N.  H.  287  (1859);  Emerson  v.  Durand,  64  Wis.  in 
(1885). 

B  Hagenbuchle  v.  Schultz,  69  Hun.  (N.  Y.)  183  (1893);  Winchester  v.  Glazier, 
i?j  Mass.  316  (1890);  9  L.  R.  A.  424  and  note;  Askew  v.  Springer,  in  111.  662 
(1884);  Couch  v.  Woodruff,  63  Ala.  466  (1879). 


DIVISION    OF    PROFITS.  95 

the  earnings  of  the  partnership,  but  also  usually  reduces  the 
amount  which  each  partner  draws  from  the  firm  for  personal 
use  to  a  fixed  and  definite  sum.  Also  it  makes  more  apparent 
the  real  results  of  the  partnership  undertaking.  (See  Form 

10.) 

A  partnership  business  can  not  be  said  to  be  making 
a  profit  unless  it  is  yielding  something  beyond  a  fair  compen- 
sation for  the  services  of  the  partners.  If,  however,  no  sal- 
aries are  paid  and  the  partners  only  draw  from  time  to 
time  such  sums  as  they  may  need,  they  not  infrequently  lose 
sight  of  the  fact — when  such  is  the  case — that  their  business 
is  merely  giving  them  an  opportunity  to  earn  wages.  Such 
a  condition  may  be  entirely  satisfactory  to  the  partners,  or  in 
new  undertakings  their  services  may  have  to  be  given  for  a 
time  without  compensation,  but  an  established  business  is 
usually  expected  to  show  returns  above  fair  salaries  to  the 
partners.  In  any  event  those  arrangements  are  to  be  preferred 
that  show  most  clearly  the  real  conditions  of  the  business. 

§  65.     Interest  on  Investments. 

As  has  been  stated  (see  §  39),  the  general  rule  is  that 
no  partner  has  any  claim  for  interest  on  his  investment,  or  on 
his  excess  investment,  or  on  his  advances  or  on  profits  not 
withdrawn,  unless  express  provision  has  been  made  to  that 
effect  in  the  partnership  agreement.7  The  rule  has  not  been 
sustained,  though,  in  all  cases,  and  where  circumstances  would 
imply  an  agreement  to  pay  interest  or  where  there  was  reason 
to  consider  that  the  advances  were  in  the  nature  of  loans,  in- 
terest has  been  allowed.8  In  a  Massachusetts  case,  the  court 
said: 

7  i   Lindley  on  P.,  p.   389;   Collyer  on  P.,  §   318;   2  Bates  on  P.,  §   781   et  seq.; 
Hallock  v.    Streeter,    102   Fed.    Rep.    193    (1900). 

8  Rodgers   v.    Clement,    162    N.    Y.    422    (1900),    and    cases   therein    cited;    Win- 
cheste'r  v.   Glazier,    152  Mass.   316    (1890),  9   L.   R.   A.   424  and  notes;   Ligare  v.   Pea- 
cock, 109  111.  94  (1884);  Morris  v.  Allen,  14  N.  J.  Eq.  44  (1861);  Hartman  v.  Woehr, 
18  N.  J.   Eq.  383    (1867);  Collender  v.  Phelan,  79  N.   Y.   366   (1880);   Baker  v.   Mayo, 
129  Mass.    517    (1880). 


96  PARTNERSHIP   RELATIONS. 

"Now  although  interest  might  not  be  allowed  to  a 
partner  for  such  advances  and  unwithdrawn  profits  in 
the  absence  of  an  agreement  or  understanding  to  that 
effect,  yet  slight  circumstances  may  be  sufficient  to  show 
such  an  understanding."  Winchester  v.  Glazier,  152 
Mass.  316  (1890). 

It  is,  however,  always  prudent  to  arrange  in  the  articles, 
or  by  special  agreement  thereafter,  that  interest  is  to  be  paid 
where  such  payment  is  intended,  or  where  it  is  equitable  that 
it  should  be  paid.  (See  Forms  5,  32  and  33.) 

Where  there  is  a  manifest  disparity  of  investment,  it 
would  appear  but  equitable  that  either  the  profits  should  be 
divided  in  some  unequal  proportion  or  that  interest  should  be 
allowed  on  the  excess  investment.  The  same  is  true  as  to  ad- 
vances made  to  the  firm  by  partners.  In  any  such  case  it  may 
be  arranged  that  interest  shall  be  paid  by  the  firm,  or  it  may 
be  made  an  individual  matter,  each  partner  bearing  a  propor- 
tionate part  of  the  interest  charge.  Interest  on  excess  invest- 
ments is  usually  deemed  preferable  by  those  making  the 
smaller  investments,  to  compensation  to  the  larger  investors 
by  giving  them  a  larger  proportion  of  profits.  In  a  business 
in  which  material  risk  of  capital  is  involved,  the  legal  rate  of 
interest  would  not  be  sufficient  compensation  for  excess  in- 
vestments or  advances,  and  in  such  cases  the  partner  furnish- 
ing the  extra  capital  would  properly  insist  on  a  higher  rate. 
The  usury  laws  would  not  apply  to  such  a  contract.9 

If  a  firm  becomes  insolvent  its  other  creditors  will  have 
the  preference  over  a  partner  who  makes  a  loan  to  the  firm 
with  an  agreement  for  the  payment  of  a  specified  interest.10 
Upon  dissolution  and  adjustment  of  accounts,  the  partner  in 

9  2  Bates  on  P.,   §    784;   Payne  v.   Freer,  91    N.   ¥.'"43    (1883);   Owis  v.   Curtis, 
157    N.    Y.    657    (1899). 

10  2   Bates  on  P.,   §    811;   Wallerstein  v.    Ervin,   112   Fed.   Rep.    124    (1901). 


DIVISION    OF    PROFITS.  97 

whose  favor  the  balance  stands  is  usually  allowed  interest 
thereon,  but  the  allowance  depends  upon  the  circumstances  of 
each  case  and  there  is  no  inflexible  rule.11 

§  66.     Secret  Profits. 

The  rule  of  good  faith  requires  that  all  profits  made 
within  the  scope  of  the  partnership  business  shall  be  turned 
in  for  the  benefit  of  the  entire  firm.  If  any  partner  violates 
this  rule  and  uses  his  position  in  the  firm  and  the  knowledge 
he  has  of  the  business  to  secure  any  secret  rebates,  commis- 
sions or  other  profits  to  himself,  he  will,  if  discovered,  be 
held  liable  to  the  firm  for  the  amount  so  realized.12  (Sec 
§  51.)  The  Court  of  Appeals  of  New  York,  in  Mitchell  v. 
Reed,  cited  below,  stated  the  rule  as  follows: 

"The  relation  of  partners  with  each  other  is  one  of 
trust  and  confidence.  Each  is  the  general  agent  of  the 
firm,  and  is  bound  to  act  in  entire  good  faith  to  the  other. 
The  functions,  rights  and  duties  of  partners  in  a  great 
measure  comprehend  those  both  of  trustees  and  agents, 
and  the  general  rules  of  law  applicable  to  such  characters 
are  applicable  to  them.  Neither  partner  can,  in  the  busi- 
ness and  affairs  of  the  firm,  clandestinely  stipulate  for  a 
private  advantage  to  himself.  Every  advantage  which 
he  can  obtain  in  the  business  of  the  firm  must  inure  to 
the  benefit  of  the  firm.  These  principles  are  elementary, 
and  are  not  contested.  (Story,  §§  174,  175;  Collyer, 
181,  182.)" 

In  Holmes  v.  Oilman,  the  same  court  said : 

11 9  L.  R.  A.  424,  note  and  cases  cited;  Johnston  v.  Hartshorne,  52  N.  Y. 
173  (1873);  Smith  v.  Smith,  18  R.  I.  722  (1894);  Dunlap  v.  Watson,  124  Mass.  305 
(1878). 

12  Perry  on  Trusts,  §  127;  i  Lindley  on  P.,  p.  303;  Shaler  v.  Trowbridge, 
28  N.  J.  Eq.  595  (1877);  Mitchell  v.  Reed,  61  N.  Y.  123  (1874);  Struthers  v.  Pearce, 
51  N.  Y.  357  (1873);  Riddle  v.  Whitehill,  135  U.  S.  621  (1889);  Holmes  v.  Oilman, 
138  N.  Y.  369  (1893);  Williamson  v.  Monroe,  101  Fed.  Rep.  322  (1900);  and  cases 
there  cited. 


98  PARTNERSHIP   RELATIONS. 

"That  a  partner  occupies  a  fiduciary  position  with 
regard  to  his  co-partners  and  the  funds  of  the  firm,  and 
will  not  be  permitted  to  make  a  personal  profit  out  of 
the  use  of  such  funds,  is,  I  think,  clearly  established. 
Although  partners  do  not,  in  the  strict  sense  of  the  term, 
occupy  the  position  of  trustees  towards  each  other  and 
towards  the  firm  funds,  yet  the  position  is  one  of  a  fidu- 
ciary nature,  calling  for  the  maintenance  and  exercise 
of  the  greatest  good  faith  between  them.  Such  a  rela- 
tionship authorizes  the  same  remedy  on  behalf  of  the 
wronged  partner  as  would  exist  against  a  trustee,  strictly 
so  called,  on  behalf  of  a  cestui  que  trust." 

This  rule  is  peculiarly  liable  to  violation  by  promoters 
when  organizing  corporations  to  take  over  their  enterprises.13 
They  overlook  or  disregard  the  fact  that  those  who  go  into 
the  corporation  with  them  are  from  a  legal  standpoint  their 
partners,  and  that  therefore  none  must  make  any  secret  profit 
on  the  promotion.  All  rebates,  all  commissions,  all  agree- 
ments looking  to  the  secret  profit  of  one  or  more  of  the  pro- 
moters are  illegal,  and  if  discovered  can  be  taken  for  the  bene- 
fit of  all  concerned.  In  regard  to  promoters  it  is  said: 

"Their  relation  to  the  persons  who  become  corpor- 
ators or  subscribers  to  stock,  and  their  relation  to  the 
proposed  corporation,  when  formed,  is  a  fiduciary  relation, 
or  a  relation  of  trust  and  confidence.  And  for  this  rea- 
son it  is  well  settled  that  they  will  not  be  permitted  to 
take  advantage  of  their  position  in  order  to  make  a  secret 
profit  out  of  their  transactions  in  behalf  of  the  proposed 
corporation  or  of  the  corporators  or  out  of  their  deal- 
ings with  the  corporation  or  corporators."  i  Clark  & 
Marshall,  Private  Corporations,  §  nob. 

If  a  partner  uses  firm  funds  in  his  private  speculation 
he  can  be  compelled  to  account  for  any  profits.  If  the  result 

13  Conyngton  on  Corporate  Organization,  Chapter  XXXIII,  Concerning  Pro- 
moters; Densmore  Co.  v.  Densmore,  64  Pa.  St.  43  (1870);  New  Sombrero  Phosphate 
Co.  v.  Erlanger,  5  Ch.  D.  73  (1878). 


DIVISION    OF    PROFITS.  99 

is  a  loss  he  must  bear  this  himself,  returning  the  partnership 
funds  intact.14  (See  §  52.)  This  rule  also  applies  to  the 
use  for  private  gain  of  time  or  skill  which  should  be  applied 
to  the  firm  business. 

"If  a  partner  speculate  with  the  firm's  funds  or 
credit  he  must  account  to  his  co-partners  for  the  profits, 
and  bear  the  whole  losses  of  such  unauthorized  ventures 
himself.  And  if  he  go  into  competing  business,  depriv- 
ing the  firm  of  the  skill,  time  or  diligence  or  fidelity  he 
owes  to  it,  so  he  must  account  to  the  firm  for  the  profits 
made  in  it."  i  Bates  on  P.,  §  306. 

§  67.     Right  to  an  Accounting. 

Every  partner  is  entitled  to  have  accurate  accounts  kept. 
This  is  usually  specified  in  the  partnership  articles  (see  Form 
19),  but  the  right  is  independent  of  any  such  specifications, 
existing  whether  or  not  any  reference  has  been  made  to  it  in 
the  terms  of  agreement.  This  makes  it  the  duty,  of  each 
partner  to  keep  an  accurate  record  of  his  own  transactions 
concerning  the  firm  business,  and  if,  as  is  usually  the  case, 
some  one  partner  or  some  particular  employee  is  designated 
to  keep  the  firm  books,  it  is  the  duty  of  each  partner  to  furnish 
such  accountant  full  information  as  to  his  transactions.15 

It  is  also  the  right  of  every  partner  to  have  access  to  the 
firm  books  and  accounts  and  to  make  extracts  therefrom.16 

"One  partner  has  no  right  to  keep  the  partnership 
books  in  his  own  exclusive  custody,  or  to  remove  them 
from  the  place  of  business  of  the  partnership.  In  the 
absence  of  an  express  agreement  to  the  contrary,  every 
partner  has  a  right,  without  the  permission  of  his  co- 
partners, to  inspect,  examine  and  make  extracts  from  all 

14  i   Bates  on  P.,  §   306;   Karrick  v.  Hannaman,   168  U.    S.   336   (1897). 

"Pomeroy  v.  Benton,  7  Mo.  64  (1882);  Knapp  v.  Edwards,  57  Wis.  191 
(1883). 

16  i   Bates  on  P.,   §§   313,  314;   George  on  P.,   §    76;  Mechem  on  P.,  §    116. 


IOO  PARTNERSHIP   RELATIONS. 

the  books  of  the  firm;  and  no  partner  can  deprive  his  co- 
partners of  this  right  by  keeping  the  partnership  accounts 
in  a  private  book  of  his  own,  containing  other  matters 
with  which  they  have  no  concern."  2  Lindley  on  P., 
p.  808. 

The  books  of  account  should  always  be  kept  at  the  office 
of  the  firm,  or  if  it  has  more  than  one,  at  the  principal  office. 
When  books  are  properly  kept  and  all  the  partners  have  access 
to  them,  they  are  presumed  to  know  what  is  in  them,  and  the 
books  are  competent  evidence  in  any  dispute  between  firm 
members.17  If  the  books  have  been  mutilated  or  destroyed, 
or  if  the  accounts  have  been  garbled  or  falsified,  every  pre- 
sumption will  be  allowed  against  the  interest  of  the  partner 
at  fault.  If  no  accounts  at  all  are  kept  the  same  presumption 
will  hold  against  the  one  at  fault.  On  this  point  Judge  Lind- 
ley says: 

"If  no  books  of  account  are  kept,  or  if  they  are  so 
kept  as  to  be  unintelligible,  or  if  they  are  destroyed  or 
wrongfully  withheld,  and  an  account  is  directed  by  a 
court,  every  presumption  will  be  made  against  those  to 
whose  negligence  or  mis-conduct  the  non-production  of 
proper  accounts  is  due.  If  all  the  persons  interested  in 
the  account  are  in  pari  delicto,  this  rule  can  not  be  ap- 
plied; but  it  is  the  duty  of  continuing  or  surviving 
partners  so  to  keep  the  accounts  of  the  firm,  as  at  any 
time  to  show  the  position  of  the  firm  when  a  change 
among  its  members  has  occurred."  2  Lindley  on  P., 
p.  809. 

Usually  when  proceedings  are  brought  for  dissolution, 
part  of  the  relief  demanded  is  that  an  account  be  had  of  the 
partnership  transactions.  In  a  few  cases,  however,  it  is  pos- 
sible to  have  an  accounting  independent  of  an  action  for  dis- 
solution.18 (See  §  88.) 

17  2  Bates  on  P.,  §  978;  Fairchild  v.  Fairchild,  64  N.  Y.  471  (1876);  Nat. 
Bank  v.  Widener,  24  App.  Div.  (N.  Y.)  330  (1897). 

18Sanger  v.   French,    157   N.   Y.   213    (1878),  and  cases  there  cited. 


PART  IV.— TERMINATION. 


CHAPTER  XIII. 
DISSOLUTION   BY  AGREEMENT. 


§  68.     Introductory. 

A  partnership  may  terminate: 

(1)  By  agreement.     Upon  the  expiration  of  its  term 
as  limited  by  the  partnership  articles  the  partnership  will  be 
dissolved  in  any  particular  manner  prescribed  by  the  articles, 
or,  in  the  absence  of  "such  provisions,  in  accordance  with  the 
rules  of  common  law.    A  partnership  may  be  dissolved  at  any 
time  by  unanimous  agreement  regardless  of  the  period  fixed 
by  the  articles.     Not  infrequently  partnerships  are  terminated 
by  the  incorporation  of  the  partnership  business.     (See  §§  69, 
70,  71-) 

(2)  By  force  of  circumstances.     A  partner  may  give 
notice  of  withdrawal,  may  assign  his  interest  to  a  stranger, 
die,  become  insane  or  permanently  disabled,  or  become  bank- 
rupt, thereby  necessitating  a  dissolution  of  the  partnership. 
Or  the  failure  of  the  enterprise,  involving  bankruptcy,  usually 
compels  a  dissolution.     In  some  cases  of  professional  or  of 
skilled  trade  partnerships,  the  members  might  continue  their 
relations  during  and  after  bankruptcy  proceedings,  but  this 
would  'hot  be  possible  in   an  ordinary  trading  firm.      (See 
Chap.  XIV,  Enforced  Dissolution.) 

101 


102  PARTNERSHIP   RELATIONS 

(3)  Through  disagreement  of  the  partners.  This 
usually  requires  dissolution  by  legal  procedure  with  possible 
resort  to  injunction  and  the  appointment  of  a  receiver  for  the 
settlement  of  the  partnership  affairs.  (See  Chap.  XV,  Dis- 
solution Upon  Disagreement.) 

§  69.     Expiration  of  Period. 

The  duration  of  a  partnership  is  usually  specifically  lim- 
ited by  the  terms  of  the  partnership  agreement.  The  simplest 
form  of  such  limitation  merely  provides  that  the  partnership 
shall  last  for  some  specified  time  or  until  the  completion  of 
some  particular  undertaking  without  provision  for  the  terms 
or  method  of  dissolution.  (See  Form  6.)  This  limits  the 
continuance  of  the  partnership,  but  leaves  the  partners  to  ar- 
range the  details  of  the  dissolution  when  the  time  comes. 
Frequently,  however,  the  partnership  articles  in  addition  to 
prescribing  the  period  will  also  include  specific  arrangements 
for  closing  up  the  business  and  settling  its  affairs.  This  is 
advisable  where  conditions  permit.  It  is,  though,  difficult  to 
anticipate  the  exact  condition  of  affairs  at  the  end  of  a  term 
of  years  and  unforeseen  events  may  render  impossible  the  best- 
laid  plans  for  dissolution. 

Before  a  partnership  term  expires,  it  would  rest  on  the 
members  of  the  firm  to  decide  whether  they  wish  to  renew  the 
same  partnership  agreement  for  another  term,  to  enter  into 
some  new  or  modified  arrangement,  or  to  dissolve  and  wind 
up  the  business.  If  the  business  were  of  any  value,  it  would 
probably  be  continued  in  some  shape.  This  might  be  either 
the  renewal  of  the  old  partnership  for  a  further  term;  the 
formation  of  a  new  partnership  with  some  change  of  mem- 
bership ;  the  incorporation  of  the  business  or  possibly  a  sale  of 
the  business  to  a  new  firm.  The  continuance  without  any 
further  agreement  would  constitute  a  partnership  at  will,  liable 


DISSOLUTION    BY   AGREEMENT.  103 

to  termination  at  any  time  on  demand  of  any  partner,1  but 
governed  in  other  respects  by  the  terms  of  the  old  agree- 
ment.2 

"If  a  partnership  is  continued  after  the  expiration 
of  the  time  originally  contemplated,  or  is  dissolved  by 
the  retirement  or  addition  of  a  partner,  the  business  be- 
ing continued,  the  continued  partnership  is  deemed  to  be 
on  the  same  terms,  as  far  as  applicable,  as  before,  ex- 
cept that  it  becomes  a  partnership  at  will,  and  all  the  pro- 
visions of  the  original  articles  which  are  consistent  with 
continuance  of  the  partnership  at  will  or  for  a  new  term, 
if  so  agreed,  are  binding  on  the  members."  i  Bates  on 
Partnership,  §  216. 

§  70.     Agreement  for  Dissolution. 

When  the  term  of  a  partnership  has  expired  and  no  pro- 
vision is  made  in  the  articles  for  its  dissolution;  or  if,  prior 
thereto,  one  partner  desires  or  is  compelled  to  retire,  or  if  dis- 
agreements among  the  partners  make  a  termination  of  the 
partnership  relation  desirable,  the  terms  and  method  of  dis- 
solution are  frequently  difficult  to  arrange.  Recourse  may 
then  be  had  to  the  courts  and  a  receivership,  if  the  matter  can 
be  arranged  in  no  other  way,  but  every  effort  should  be  ex- 
hausted to  effect  the  dissolution  on  agreed  terms,  or  on  some 
compromise,  or  by  arbitration  of  disputed  points,  in  order 
to  avoid  the  expense,  delay  and  destruction  of  values  incident 
to  a  forced  dissolution.3  (See  §  87,  Receivership.) 

The  simplest  solution  of  difficulties  of  the  kind  where  one 
or  more  partners  are  harmonious  or  wish  to  continue,  is  for 
these  to  buy  out  the  partners  who  wish  to  retire  or  who  are 


v.  Homer,   12  Barb.    (N.  Y.)   601    (1852);  Wilson  v.    Simpson,  89  N.   Y. 
619    (1882);    Duffield   v.    Brainerd,   45    Conn.    424    (1878). 

2  Bradley   v.    Chamberlin,    16    Vt.    613    (1844);    Sangston   v.    Hack,    52    Md.    173 
(1879);  Boardman  v.  Close,  44  la.  448   (1876);  Essex  v.   Essex,  20  Beav.  442   (1855); 
Cox  v.   Willoughby,    13   Ch.   Div.    863    (1880). 

3  2    Bates    on    P.,    §    993. 


104  PARTNERSHIP   RELATIONS. 

dissatisfied.  Where  this  can  be  done  it  simplifies  matters  and 
leaves  only  the  price  and  terms  of  payment  to  be  decided. 
Widely  differing  views  are  apt  to  obtain  as  to  the  value  of  the 
good-will  4  and  the  firm  name,  but  this  question  may  be  left 
to  arbitration,  or  the  actual  assets  may  be  paid  for  in  cash  and 
some  payment  contingent  on  profits  be  provided  for  the  good- 
will, or  some  other  settlement  may  be  effected.  Incorporation 
often  affords  a  simple  method  of  closing  up  the  partnership 
affairs  satisfactorily. 

Where  it  is  necessary  to  actually  wind  up  the  business, 
any  agreement  reached  between  the  partners  should  provide 
for  a  trustee  to  take  charge  of  the  settlement  on  behalf  of  the 
partners,  and  should  direct  the  closing  up  of  the  business,  the 
liquidation  of  its  assets,  the  collection  of  outstanding  debts, 
the  settlement  of  its  obligations,  the  partition  of  losses  or  the 
division  of  profits,  and  the  withdrawal  of  the  investments  of 
the  partners.5  The  legal  rules  governing  such  dissolutions 
are  well  known  (see  Chap.  XVI),  and  if  partners  can  settle 
without  resort  to  the  courts  it  will  be  to  their  great  advantage. 
(See  Form  44.) 

§  71.     Incorporation. 

In  many  cases  the  most  satisfactory  method  of  disposing 
of  a  partnership  business,  worth  preserving,  is  by  incorpora- 
tion. This  is  preeminently  a  dissolution  by  agreement  and 
has  the  advantage  of  preserving  the  firm  name  and  good-will, 
and  continuing  the  business  as  a  going  concern  without  inter- 
ruption. The  corporate  form  also  offers  a  wide  range  of  op- 
portunity for  adjustment  of  the  varying  claims  of  the  different 
partners.  Its  capabilities  in  this  direction  are  not  commonly 
understood.  By  its  use  it  is  often  possible  to  make  a  most 
satisfactory  settlement  of  conflicting  partnership  interests. 
(See  Part  V,  Incorporation.) 

*2   Bates   on   P.,   Chap.    VI. 
6  2  Bates  on  P.,   Chap.   IV. 


CHAPTER  XIV. 
ENFORCED  DISSOLUTION 


§  72.     By  Notice. 

In  a  partnership  at  will  any  partner  may  terminate  the 
relation  at  any  time  by  merely  giving  his  associates  notice 
that  he  withdraws  from  the  partnership.3  This  notice  should 
be  specific,  be  in  writing  and  be  delivered  to  each  of  the  part- 
ners. As  between  themselves  such  notice  concludes  the  part- 
nership, the  remaining  partners  have  no  authority  to  bind  the 
retiring  member  further  by  the  firm  contracts  and  the  business 
and  affairs  of  the  partnership  must  be  wound  up  by  the  or- 
dinary process  of  dissolution.  (See  Chap.  XVII,  Closing  Up 
the  Business.)  The  partner  withdrawing  will  be  liable  on  all 
obligations  of  the  firm  up  to  the  time  the  notice  of  withdrawal 
is  given,  but  at  that  point  the  mutual  agency  powers  of  the 
partners  cease  and  they  have  no  authority  to  obligate  him 
further  on  firm  account.  To  make  this  withdrawal  of  au- 
thority effective  it  must,  however,  as  stated  later,  be  duly 
notified  to  those  with  whom  the  firm  has  dealings,  and  to  the 
public  at  large. 

When  the  partnership  is  for  a  term  or  for  a  specified 
undertaking,  but  provision  has  been  made  that  any  partner 
may  terminate  the  relation  by  giving  prescribed  notice,  the 
formalities  are  the  same,  except  that  the  notice  must  be  given 

1  I  Lindley  on  P.,  p.  210  et  seq. ;  Story  on  P.,  §  275;  2  Bates  on  P.,  §  574; 
McElroy  v.  Lewis,  76  N. 'Y.  373  (1879);  Duffield  v.  Brainerd,  45  Conn.  424  (1878); 
Fletcher  v.  Reed,  131  Mass.  312  (1881);  Blake  v.  Sweeting,  121  111.  67  (1887); 
Spears  v.  Willis,  151  N.  Y.  443  (1897)- 

105 


IO6  PARTNERSHIP   RELATIONS. 

in  accordance  with  the  requirements  of  the  partnership  ar- 
ticles.2    (See  Form  7.) 

If  the  partnership  is  for  a  term  of  years  or  for  the  ac- 
complishment of  some  particular  object  without  provision  for 
dissolution  prior  thereto,  any  partner  may,  notwithstanding, 
bring  the  relation  to  an  abrupt  conclusion  by  giving  notice  of 
his  withdrawal.  This  avoids  any  future  partnership  liability 
so  far  as  he  is  concerned,  but  he  will  be  liable  to  his  partners 
for  any  damages  that  may  result  from  his  breach  of  contract.3 
In  Skinner  v.  Dayton,  cited  below,  the  Court  said : 

"There  can  be  no  such  thing  as  an  indissoluble  part- 
nership. Every  partner  has  an  indefeasible  right  to  dis- 
solve the  partnership,  as  to  all  future  contracts,  by  pub- 
lishing his  own  volition  to  that  effect;  and  after  such 
publication,  the  other  members  of  the  firm  have  no  capa- 
city to  bind  him  by  any  contract.  Even  where  partners 
covenant  with  each  other,  that  the  partnership  shall  con- 
tinue seven  years,  either  partner  may  dissolve  it  the  next 
day,  by  proclaiming  his  determination  for  that  purpose; 
the  only  consequence  being,  that  he  thereby  subjects  him- 
self to  a  claim  for  damages  for  a  breach  of  his  covenant/' 

To  the  same  effect  in  Karrick  v.  Hannaman,  Justice  Gray 
said: 

"No  partnership  can  efficiently  or  beneficially  carry 
on  its  business  without  the  mutual  confidence  and  co- 
operation of  all  the  partners.  Even  when,  by  the  part- 
nership articles,  they  have  covenanted  with  each  other 
that  the  partnership  shall  continue  for  a  certain  period, 
the  partnership  may  be  dissolved  at  any  time,  at  the  will 
of  any  partner,  so  far  as  to  put  an  end  to  the  partnership 

2  Swift   v.    Ward,   80   la.    700    (1890),    n    L.    R.   A.    302. 

3  2    Bates    on    P.,    §§    577,    578;    Bagley   v.    Smith,    10    N.    Y.    489    (1853);    Kar- 
rick v.   Hannaman,    168   U.    S.   328    (1897);   42  L.   Ed.   484,  see  note;   Skinner  v.   Day- 
ton,   19  Johns.    (N.   Y.)    513    (1822);    Marquand  v.    Mfg.    Co.,    17   Johns.    (N.    Y.)    525 
(1820);   Solomon  v.   Kirkwood,   55  Mich.   256   (1884);   Bank  v.   Railroad  Co.,   78  U.    S. 
624    (1870). 


ENFORCED    DISSOLUTION.  IO7 

relation  and  to  the  authority  of  each  partner  to  act  for 
all;  but  rendering  the  partner  who  breaks  his  covenant 
liable  to  an  action  at  law  for  damages,  as  in  other  cases 
of  breaches  of  contract.  *  *  *  A  partner  who  assumes 
to  dissolve  the  partnership,  before  the  end  of  the  term 
agreed  on  in  the  partnership  articles,  is  liable,  in  an 
action  at  law  against  him  by  his  co-partner  for  the 
breach  of  the  agreement,  to  respond  in  damages  for  the 
value  of  the  profits  which  the  plaintiff  would  otherwise 
have  received." 

On  the  other  hand  it  must  be  noted  that  some  authorities 
deny  the  right  of  a  partner  to  dissolve  a  partnership  made  for 
a  fixed  term  before  the  expiration  of  that  term.4  On  occasion 
certain  courts  have  even  granted  injunctions  against  a  disso- 
lution of  partnerships  of  this  nature,  holding  that  damages 
could  not  really  compensate  the  injury  wrought  by  such  a 
failure  to  observe  the  terms  of  partnership.  The  cases  in 
which  this  would  be  done  are  rare,  but  there  can  be  no  ques- 
tion that  a  wilful  violation  of  the  partnership  contract  is 
ordinarily  both  unwise  and  unjustifiable.  If  the  conduct  of 
other  partners  is  such  as  to  justify  one  in  withdrawing  before 
the  expiration  of  the  specified  term,  it  is  such  as  to  afford  him 
ample  ground  for  an  appeal  to  a  court  of  equity  through 
which  a  legal  dissolution  may  be  secured 

To  make  a  withdrawal  effectual  the  notice  to  the  part- 
ners must  be  followed  by  notice  to  those  dealing  with  the 
firm  and  to  the  general  public.  If  these  notices  are  neglected, 
the  retiring  partner,  while  free  as  regards  his  associates,  re- 
mains liable  to  third  parties  precisely  as  though  he  had  made 
no  effort  to  withdraw.  It  is  held  that,  failing  to  give  these 
notices,  the  retiring  member  of  the  firm  still  allows  himself 
to  be  held  out  as  a  partner,  and  the  general  rule  then  applies 

4  Story  on  P.,  §  275;  Van  Kuren  v.  Trenton  Co.,  13  N.  J.  Eq.  302;  Seighortner 
v.  Weissenborn,  20  N.  J.  Eq.  172;  Johnson  v.  Button,  27  Ala.  245  (1855);  see  note 
to  Karrick  v.  Hannaman,  supra,  in  42  L.  Ed.  488,  for  a  strong  presentation  of  this 
view. 


io8 


PARTNERSHIP   RELATIONS. 


that  anyone  allowing  himself  to  be  held  out  as  a  partner  incurs 
a  partner's  liability.  If  he  has  been  a  partner  it  is  incumbent 
on  him  to  see  that  third  parties  know  that  he  is  one  no  longer. 
He  must  warn;  they  need  not  enquire.5  (See  §  61.) 

The  formalities  of  notice  of  withdrawal  must  be  fully 
observed.  An  individual  notice  must  be  sent  to  each  person 
who  has  dealt  with  the  firm.  This  is  commonly  sent  by  mail, 
but  unless  it  can  be  shown  that  it  has  been  received,  even  this 
is  not  sufficient.  Actual  personal  notice  is  necessary.6  Proof 
that  such  notices  have  been  duly  mailed  is  prima  facie  evi- 
dence of  their  having  been  received,  but  this  may  be  rebutted. 
Publication  in  one  or  more  newspapers  circulating  in  the  lo- 
cality is  sufficient  notice  to  all  parties  who  have  not  thereto- 
fore dealt  with  the  firm.7 

Specific  notice  to  those  who  have  dealt  with  the  firm  and 
to  the  general  public  is  not  required  when  a  partnership  is 
dissolved  by  bankruptcy,  by  death  or  by  war.  These  causes 
are  supposed  to  be  of  themselves  sufficiently  public  and  ob- 
vious, and  the  partners  are  freed  from  obligation  to  give  the 
usual  notice  of  dissolution.8 

A  dormant  partner  need  not  give  notice  but  may  retire  in 
the  same  unostentatious  manner  in  which  he  entered.9 


§  73.     By  Sale  of  Partner's  Interest. 

If  a  partner  sells  his  interest  in  a  firm,  or  if  it  be  sold 
under  execution,  it  is  in  effect  a  dissolution  of  the  partner- 

5  Austin  v.  Holland,  69  N.  Y.   571   (1877),  and  cases  cited  under  notes  6  and  7; 
Van   Kuren  v.   Trenton   Co.,    13    N.    J.    Eq.    302    (1861);    Seighortner   v.    Weissenborn, 
20   N.   J.    Eq.    172    (1869). 

6  Austin   v.   Holland,   supra;   Nat.   Bank  v.   Herz,   89   N.   Y.    629    (1882);    Meyer 
v.   Krohn,   114  111.    574   (1885);   Elkinton  v.   Booth,   143   Mass.   479    (1887). 

7Lovejoy  v.    Spafford,   93   U.    S.    430    (1876);    23   L.    Ed.    851,   see   note;    Cen- 
tral  Bank  v.   Frye,    148   Mass.   498    (1889);    Solomon   v.    Kirkwood,   supra. 

8  Griswold    v.    Waddington,    15    Johns.     (N.    Y.)    57    (1816);    Eustis    v.    Holies, 
146  Mass.   413    (1888). 

9  Elmira  Co.  v.  Harris,  79  N.   Y.   280   (1891);   Shamburg  v.   Ruggles,  83  Pa.   St. 
148    (1876). 


ENFORCED   DISSOLUTION.  109 

ship.10  A  stranger  can  not  be  forced  into  the  firm,11  and  all 
the  assignee  secures  is  a  right  to  have  the  firm  dissolved,  and 
after  all  debts  have  been  paid,  all  obligations  discharged  and 
its  affairs  settled,  to  receive  his  share  of  whatever  surplus 
may  remain.  In  a  mining  partnership  or  a  joint  stock  com- 
pany the  rule  is  otherwise,  as  has  been  explained.  (See  §§8, 
9.)  In  cases  of  assignment  of  a  partner's  interest,  if  the  other 
members  of  the  firm  were  willing  to  receive  the  assignee  as 
a  partner,  no  dissolution  would  be  necessary,  nor  need  there 
be  any  disturbance  of  the  firm  affairs,  but  nevertheless  the 
result  would  be  a  new  firm,  not  a  continuation  of  the  old. 

Unless  with  the  consent  of  the  remaining  partners  an  as- 
signee has  no  right  to  interfere  in  the  partnership  business, 
to  take  any  portion  of  its  property,  to  act  for  it  in  any  way, 
or  to  do  anything  more  than  to  demand  the  winding  up  of 
the  partnership  affairs  by  the  other  partners,  with  a  view  to 
determining  the  amount  due  him  from  the  surplus. 

If  execution  is  issued  against  a  partner,  nothing  can  be 
sold  but  the  right  he  has  in  the  surplus  remaining  after  dis- 
solution and  settlement  of  the  firm  business.12 

"Purchasers  of  the  share  of  an  individual  partner 
can  only  take  his  interest.  That  interest  and  not  a  share 
of  the  partnership  effects  is  sold,  and  it  consists  merely 
of  the  share  of  the  surplus  which  shall  remain  after  the 
payment  of  the  debts  and  settlement  of  the  accounts  of 
the  firm."  13 

The  purchaser  of  a  partner's  share  has  no  voice  nor  part 
in  the  winding  up,  which  devolves  upon  the  remaining  part- 

10Menagh  v.  Whitwell,  52  N.  Y.  146  (1873);  Barkley  v.  Topp,  87  Md.  25 
(1882);  Ballard  v.  Callison,  4  W.  Va.  326  (1870). 

11  Burnett  v.    Snyder,    76    N.    Y.    344    (1879);    Miller   v.    Brigham,    50    Cal.    615 
(1875). 

12  2  Bates  on  P.,  §    1098. 

13  3    Kent  Comm.    78,    Note   b. 


HO  PARTNERSHIP   RELATIONS. 

ners,  though  these  would  not  be  allowed,   in  so  doing,  to 
abuse  their  trust.14 

It  has  been  questioned  whether  the  sale  of  his  interest  by 
a  partner  for  a  term,  dissolves  the  partnership  or  is  only  a 
cause  for  dissolution.  The  weight  of  authority  seems  to  be 
that  such  an  assignment,  of  itself,  dissolves  the  partnership.15 
It  is  certain  that  the  other  partners  can  always  secure  a  dis- 
solution for  such  cause.  This  is  their  right,  whether  the  sale 
was  voluntary  or  whether  the  interest  of  the  partner  has  been 
sold  under  execution.  Also  if  damages  can  be  shown,  the 
partner  selling  will  be  liable  to  his  former  partners  for  his 
breach  of  contract. 

§  74.     By  Bankruptcy. 

The  bankruptcy  of  a  firm  dissolves  it  ipse  facto.  Mere 
insolvency  may  exist  for  an  indefinite  period  without  affecting 
the  partnership  relation,  but  an  assignment  by  the  firm  for 
the  benefit  of  creditors,  or  an  adjudication  of  bankruptcy  un- 
der the  National  Bankruptcy  Law,  terminates  the  partnership. 

It  is  to  be  noted  that  under  the  present  National  Bank- 
ruptcy Act  a  partnership  is  considered  an  entity  which  may 
be  proceeded  against  as  a  whole.  The  statute  reads : 

"A  partnership  during  the  continuation  of  the  part- 
nership business  or  after  its  dissolution  before  final  set- 
tlement may  be  adjudged  a  bankrupt."  16 

In  bankruptcy  proceedings  against  a  firm,  if  one  or  more, 
but  not  all  the  partners  are  individually  adjudged  bankrupt, 
the  solvent  partner  or  partners  may,  if  they  prefer,  settle  the 

"Ballard  v.  Callison,  supra;  Hamill  v.  Hamill,  27  Md.  679  (1867);  Miller  v. 
Brigham,  supra. 

15  Bank  v.  Carrolton  Railroad,  78  U.  S.  624  (1870);  Karrick  v.  Hannaman,  168 
U.  S.  328  (1897);  S.  C.  42  L.  Ed.  484,  see  note;  Marquand  v.  President,  etc.,  17 
Johns.  (N.  Y.)  525  (1820);  Ballard  v.  Callison,  supra. 

18  See  National  Bankruptcy  Act  of  1898,  §  5,  Partners;  Loveland  on  Bank- 
ruptcy, §  96  et  seq. 


ENFORCED    DISSOLUTION.  Ill 

partnership  business  themselves,  and  account  for  the  interest 
of  the  bankrupt  members.  If,  on  the  other  hand,  all  the  part- 
ners are  insolvent,  the  creditors  appoint  a  trustee,  who 
marshals  the  assets  and  apportions  the  surplus  according  to 
the  usual  rules  as  to  priorities.  (See  §  95.) 

The  bankruptcy  of  an  individual  member  of  a  partnership 
would  dissolve  the  firm,  and  the  other  partners  would  have 
the  right  to  settle  up  its  affairs,  turning  the  interest  of  the 
bankrupt  member  over  to  the  trustee  in  bankruptcy. 

"The  partnership  debts  and  assets  are  not  drawn 
into  bankruptcy  to  be  administered,  only  the  individual 
debts  and  assets,  including  the  interest  of  the  bankrupt 
partner  or  partners  in  the  partnership  as  accounted  for 
by  the  solvent  partners,  is  administered  in  bankruptcy."  17 

In  such-  case,  if  the  bankrupt  partner  were  finally  dis- 
charged he  would  be  relieved  from  all  responsibility  for  part- 
nership as  well  as  individual  liabilities.  (See  Form  26.) 

Acts  of  bankruptcy  by  one  partner  acting  as  an  agent  for 
the  firm,  are  cause  for  adjudging  a  firm  bankrupt. 

Those  portions  of  the  National  Bankruptcy  Law  that 
define  acts  of  "bankruptcy  have  already  been  given.  (See 
§  60.)  The  parts  that  refer  to  firm  bankruptcy  are  as  fol- 
lows: 

"Section  5.  Partners,  a.  A  partnership,  during 
the  continuation  of  the  partnership  business,  or  after  its 
dissolution  and  before  the  final  settlement  thereof,  may 
be  adjudged  a  bankrupt. 

b.  The  creditors  of  the  partnership  shall  appoint 
the  trustee ;  in  other  respects,  so  far  as  possible,  the  estate 
shall    be    administered    as    herein    provided    for    other 
estates. 

c.  The  court  of  bankruptcy  which  has  jurisdiction 
of  one  of  the  partners  may  have  jurisdiction  of  all  the 

17  Loveland  on   Bankruptcy,    §    963. 


U2  PARTNERSHIP  RELATIONS. 

partners  and  of  the  administration  of  the  partnership  and 
individual  property. 

d.  The  trustee  shall  keep  separate  accounts  of  the 
partnership  property  and  of  the  property  belonging  to 
the  individual  partners. 

e.  The  expenses  shall  be  paid  from  the  partnership 
property  and  the  individual  property  in  such  proportions 
as  the  court  shall  determine. 

f.  The  net  proceeds  of  the  partnership  property 
shall  be  appropriated  to  the  payment  of  the  partnership 
debts,  and  the  net  proceeds  of  the  individual  estate  of 
each   partner  to   the  payment  of  his   individual   debts. 
Should  any  surplus  remain  of  the  property  of  any  part- 
ner   after    paying    his    individual    debts,    such    surplus 
shall  be  added  to  the  partnership  assets  and  be  applied 
to  the  payment  of  the  partnership  debts.     Should  any 
surplus  of  the  partnership  property  remain  after  paying 
the  partnership  debts,  such  surplus  shall  be  added  to  the 
assets  of  the  individual  partners  in  the  proportion  of  their 
respective  interests  in  the  partnership. 

g.  The  court  may  permit  the  proof  of  the  claim 
of  the  partnership  estate  against  the  individual  estates, 
and  vice  versa,  and  may  marshal  the  assets  of  the  part- 
nership estate  and  individual  estates  so  as  to  prevent  pre- 
ferences and  secure  the  equitable  distribution  of  the  prop- 
erty of  the  several  estates. 

h.  In  the  event  of  one  or  more  but  not  all  of  the 
members  of  a  partnership  being  adjudged  bankrupt,  the 
partnership  property  shall  not  be  administered  in  bank- 
ruptcy, unless  by  consent  of  the  partner  or  partners  not 
adjudged  bankrupt;  but  such  partner  or  partners  not 
adjudged  bankrupt  shall  settle  the  partnership  business 
as  expeditiously  as  its  nature  will  permit,  and  account  for 
the  interest  of  the  partner  or  partners  adjudged  bank- 
rupt.." National  Bankruptcy  Act  of  1898,  as  amended 
by  the  Act  of  1903. 

§  75.     By  Death  or  Insanity. 

The  death  of  a  partner  dissolves  a  partnership  immedi- 
ately, whether  it  be  a  partnership  at  will  or  a  partnership  for 


ENFORCED   DISSOLUTION.  113 

a  fixed  term.  The  mutual  agency  is  at  once  ipse  facto  re- 
voked, and  the  estate  of  the  deceased  partner  can  be  bound  by 
no  firm  obligation  entered  into  after  his  death.18 

It  is  possible,  though,  for  the  partners  to  provide  by  the 
partnership  agreement  for  the  continuance  of  the  partnership 
after  the  death  of  one  member ;  in  which  case  it  would  be  con- 
tinued by  virtue  of  such  agreement  (See  Form  28.)  A  part- 
ner, too,  may  provide  by  his  will  that  the  partnership  shall 
continue  after  his  death,  and  if  the  surviving  partners  agree 
to  this,  it  becomes  obligatory.  In  both  of  these  cases  there 
might  be  a  question  as  to  whether  the  estate  of  the  deceased 
partner  would  be  liable  on  partnership  obligations  contracted 
after  his  death,  for  anything  more  than  the  funds  already  in- 
vested. This  must  be  decided  in  each  case  by  the  language 
of  the  instrument  under  which  the  partnership  is  continued. 
It  would  require  a  very  clear  statement  to  hold  the  personal 
representatives  of  the  deceased  liable  for  more  than  the  amount 
involved  at  the  time  of  the  partner's  death.19 

In  the  case  of  Burwell  v.  Cawood,  cited  below,  the  United 
States  Supreme  Court  said: 

"Nothing,  however,  but  the  clearest  and  most  unam- 
biguous language,  showing  in  the  most  positive  manner 
an  intention  on  the  part  of  the  testator  to  render  his  gen- 
eral assets  liable  for  debts  contracted  after  his  death, 
will  justify  a  court  in  extending  the  liability  of  his  estate 
beyond  the  actual  fund  employed  therein  at  the  time  of 
his  death." 

The  insanity  of  a  partner  does  not  work  a  dissolution,  but 
may  be  sufficient  reason  for  asking  a  dissolution  by  decree.20 

"Stewart  v.  Robinson,  115  N.  Y.  328  (1889);  S.  C.  5  L.  R.  A.  410,  see  note; 
Willis  v.  Sharp,  113  N.  Y.  586  (1889). 

"Burnwell  v.    Cawood,  43   U.    S.    560    (1844);    Stewart  v.    Robinson,   supra. 

20  3  Kent  Comm.,  58;  Parsons  on  P.,  §  465;  Griswold  v.  Waddington,  15 
Johns.  (N.  Y.)  57  (1818);  Raywopd  y;  Vaughan,  128  111.  256  (1889):  4  L-  R-  A.  440. 


114  PARTNERSHIP   RELATIONS 

If  the  partnership  is  not  formally  dissolved  when  a  pai 
becomes  insane,  the  sane  partner  will  be  required  to  account 
for  the  profits  due  his  insane  partner  until  the  relation  is  ter- 
minated in  some  legal  manner.  If  the  insanity  is  temporary 
the  courts  will  not  decree  a  dissolution.21  (See  §  32.) 

§  76.     Failure  or  Impossibility  of  Enterprise. 

Where  a  partnership  has  been  formed  for  a  particular 
enterprise  or  for  the  conduct  of  a  business  in  some  direction, 
and  it  becomes  apparent  that  success  is  unobtainable  and  that 
only  loss  can  result  from  the  further  prosecution  of  the  part- 
nership business,  any  partner,  if  his  associates  will  not  agree 
to  a  peaceable  termination  of  the  business,  can  obtain  a  judi- 
cial dissolution.22  The  same  is  true  in  any  case  where  it  is 
impossible  that  the  firm  or  enterprise  should  be  continued.23 
The  insolvency  of  the  firm  would  be  sufficient  ground  for  de- 
creeing a  dissolution.24  If  one  partner  were  convicted  of  a 
felony  it  would  be  sufficient  cause,  though  in  such  case  the 
partnership  would  probably  be  dissolved  without  recourse  to 
the  courts.25 

aWhitwell    v.    Arthur,    35    Beav.    140    (1865). 

22  2    Lindley   on    P.,    p.    576;    Rosenstein    v.    Burns,    41    Fed.    Rep.    841     (1882); 
Holliday  v.   Elliott,   8   Oregon   85    (1879). 

23  Brown  v.  Hicks,  8  Fed.  Rep.   155   (1881);  Moies  v.  O'Neill,  23  N.  J.  Eq.  207 
(1872). 

24  Seighortner  v.  Weissenborn,  20   N.  J.   Eq.    172    (1869);  Jackson  v.   Deese,  35 
Ga.   84   (r866). 

^Essell  v.  Hayward,  30  Beav.    158   (1860). 


CHAPTER  XV. 
DISSOLUTION   UPON   DISAGREEMENT. 


§  77.     Introductory. 

If  the  articles  of  partnership  are  properly  prepared  the 
most  probable  causes  of  disagreement  will  be  provided  for  in 
advance.  Others  are  determined  by  well  settled  partnership 
law,  and  if  the  parties  understand  their  respective  rights  and 
duties,  and  have  well-drawn  articles,  it  should  be  entirely  pos- 
sible to  avoid  serious  friction  or  dissolution  before  the  expira- 
tion of  the  agreed  term.  Failing  this,  it  should  be  feasible 
to  disagree  and  to  dissolve  without  resort  to  the  courts. 

Unfortunately,  articles  are  often  defective  or  loosely 
worded,  partners  do  not  understand  their  reciprocal  right? 
and  duties,  or  lack  the  wisdom  and  good  feeling  necessary  to 
adjust  them,  and  complications  ensue  which  may  lead  to  long 
and  costly  litigation.  The  present  chapter  deals  with  the  usual 
disagreements  which  compel  resort  to  the  courts.  It  must  be 
noted  that  in  all  these  cases  of  disagreement  the  prayer  for 
relief  must  come  from  the  partner  who  has  done  his  part,  not 
from  the  one  at  fault.1 

§  78.     Breach  of  Articles. 

The  articles  of  partnership  form  a  contract  and  the  breach 
of  these  articles  by  one  of  the  contracting  parties  would  be 
good  ground  for  a  dissolution  of  the  partnership,  and  for 

1  Seighortner    v.    Weissenborn,    20    N.    J.    Eq.    178    (1869);    Gerard    v.    Gateau, 

84     111.      121      (1876). 

"5 


Il6  PARTNERSHIP   RELATIONS. 

damages  to  the  aggrieved  party  if  injury  could  be  shown.2 
The  breach  of  articles  would  have  to  be  serious  and  in  matters 
essential.  Failure  in  inconsiderable  matters  not  affecting  ma- 
terially the  business  would  not  afford  grounds  for  dissolu- 
tion,3 though,  if  the  trouble  and  expense  were  justified,  such 
violations  might  be  stopped  by  injunction.4 

A  failure  on  the  part  of  one  member  to  invest  the  capital 
he  had  agreed  to  put  in  would  be  ground  for  dissolution.  So, 
also,  would  be  violation  of  an  agreement  not  to  engage  in 
other  business  or  in  speculation,  or  a  failure  to  keep  books 
and  accounts,  or  a  refusal  to  open  them  to  a  partner's  inspec- 
tion, or  the  making  of  false  entries  in  the  firm  books.5  Bad 
character,  drunkenness  or  other  misconduct  might  be  good 
cause  for  dissolution  (see  §  82),  but  would  not  justify  ex- 
clusion from  the  partnership  business  without  a  formal  dis- 
solution.6 

§  79.     Abandonment  by  One  Partner. 

A  partner  abandoning  the  common  enterprise  thereby 
forfeits  his  right  to  a  share  in  the  profits  made,  but  this  penalty 
is  not  incurred  unless  the  abandonment  is  so  complete  that 
neither  his  labor  nor  his  investment  has  contributed  to  the 
making  of  the  profits.7  Such  abandonment  also  entitles  the 
other  partner  or  partners  to  have  the  partnership  dissolved,8 

2Hartman  v.  Woehr,  18  N.  J.  Eq.  383  (1867);  Rosenstein  v.  Bevins,  41  Fed. 
Rep.  841  (1882);  Meaher  v.  Cox,  37  Ala.  201  (1861). 

3  Anderson  v.  Anderson,  25  Beav.  190  (1857);  Seighortner  v.  Weissenborn, 
20  N.  J.  Eq.  178  (1869);  Gerard  v.  Gateau,  84  111.  121  (1876);  Cash  v.  Earnshaw, 
66  111.  402  (1872). 

*2  Bates  on  P.,  §   592. 

B  Campbell  v.  Clark,  101  Fed.  Rep.  972  (1900);  Cottle  v.  Leitch,  35  Cal.  434 
(1868). 

"Karrick  v.  Hannaman,  168  U.  S.  328  (1897);  Ambler  v.  Whipple,  20  Wall. 
564  (1874);  Essell  v.  Hayward,  30  Beav.  158  (1860). 

T2  Bates  on  P.,  §  589;  Denver  v.  Roane,  99  U.  S.  355  (1879);  Hartman  v. 
Woehr,  18  N.  J.  Eq.  383  (1867). 

8Babcock  v.  Hermance,  48  N.  Y.  683  (1872);  Child  v.  Swain,  69  Ind.  230 
(1879)- 


DISSOLUTION    UPON    DISAGREEMENT.  117 

and  where  it  is  possible  that  future  claims  may  be  made,  this 
step  is  best  taken  promptly.  A  temporary  absence,  or  an  ab- 
sence on  account  of  illness  will  not  be  considered  abandon- 
ment,9 nor  will  it  be  so  considered  if  it  is  the  result  of  a  part- 
ner's exclusion  from  the  business  by  his  associates.10 

The  partner  who  abandons  the  enterprise  does  not,  by  so 
doing,  dissolve  the  partnership,  and  his  associates  may  con- 
tinue and  involve  him  in  further  liabilities.11  It  is,  however, 
usually  safer  for  all  the  partners,  under  any  of  these  circum- 
stances to  dissolve  by  formal  agreement  or  by  the  retiring 
partner  giving  notice  of  withdrawal.  (See  §  72.) 

§  80.     Exclusion  of  a  Partner. 

It  not  infrequently  happens  that  a  partner  is  excluded 
from  a  business  by  his  associates,  without  the  usual  prelim- 
inary formality  of  dissolving  the  partnership  and  settling  its 
affairs.  In  such  case  he  has  good  ground  for  asking  a  legal 
dissolution,12  or  he  might  secure  an  injunction,  restraining  his 
partners  from  so  excluding  him.13  He  may,  however,  simply 
bide  his  time,  and  later  when  profits  are  made  he  may  de- 
mand an  accounting,  and  will  be  given  his  fair  share  of  any 
profits.14  In  Karrick  v.  Hannaman,  cited  below,  the  Court 
said: 

"This  court,   speaking  by  Mr.  Justice  Miller,  held 
that  drunkenness  and  dishonesty  on  the  part  of  one  part- 

9  Ambler  v.   Whipple,  20  Wall.    546    (1874). 

10  Karrick   v.    Hannaman,    168   U.    S.    328    (1897);    Ambler   v.    Whipple,   supra. 
"Austin  v.  Holland,  69  N.  Y.   571    (1877). 

12  2   Lindley  on   P.,   p.    540;   Ambler  v.   Whipple,   20   Wall.    546    (1874);   Karrick 
v.  Hannaman,   168  U.   S.   328   (1897);   Einstein  v.   Schnebly,  89  Fed.   Rep.   540   (1898); 
Groth  v.  Payment,  79  Mich.  290   (1890). 

13  2   High   on   Injunctions,    §    1335. 

14  2  Bates  on  P.,  §   794;  Holmes  v.  Oilman,   138  N.   Y.  369   (1893);   20  L.  R.  A. 
566;   Freeman   v.   Freeman,   136   Mass.   260    (1884);   Hartman  v.   Woehr,    18   N.   J.   Eq. 
386    (1867);    Major   v.    Todd,    84    Mich.    85    (1890);    Bagley   v.    Smith,    10    N.    Y.    489 
(1853). 


Il8  PARTNERSHIP   RELATIONS. 

ner  and  his  consequent  exclusion  from  the  business  did 
not  authorize  his  co-partner,  of  his  own  motion,  to  treat 
the  partnership  as  ended  and  to  take  himself  all  the  bene- 
fits of  their  joint  labors  and  joint  property,  or  exempt 
him  from  responsibility  to  account  to  the  excluded  part- 


ner." 


Under  no  circumstances  have  the  partners  in  an  ordinary 
partnership  the  right  to  expel  an  objectionable  member.  The 
only  way  to  get  rid  of  such  a  partner  is  through  a  legal  disso- 
lution of  the  copartnership.  A  clause  might  be  inserted  in 
the  articles  giving  a  majority  of  the  partners  the  right  to  expel 
a  member  for  sufficient  cause,  but  such  provision  though  legiti- 
mate would  be  difficult  to  enforce.15  When,  without  formal 
procedure,  it  is  assumed  that  a  partnership  has  been  dissolved, 
but  a  partner  or  partners  continue  the  business  with  the  part- 
nership property,  an  excluded  member  is  entitled  to  his  share 
of  the  profits.16 

On  the  other  hand  a  partner  who  allows  himself  to  be 
thus  excluded  without  a  formal  dissolution  of  the  firm,  or 
without  notifying  those  with  whom  the  firm  has  dealings  of 
his  exclusion,  may,  under  certain  circumstances,  be  held  liable 
for  the  debts  contracted  by  the  firm  after  his  active  connec- 
tion with  it  has  ceased.  Generally  speaking,  it  is  not  well  for 
either  side  to  permit  a  partnership  to  lapse  without  definite 
dissolution.  If  a  member  finds  himself  barred  out  from  the 
partnership  activities  the  courts  will  provide  relief  on  proper 
application,  and  much  annoyance  and  uncertainty  may  be 
thereby  avoided. 

§81.     Bad  Faith. 

Good  faith  is  required  on  the  part  of  each  partner.  Bad 
faith  will  be  cause  for  dissolution,  and  recovery  may  be  had 

"George  on   P.,   §    173. 

18  2  Bates  on  P.,  §  794;  Karrick  v.  Hannaman,  168  U.  S.  328  (1897);  Pearce 
v.  Ham,  113  U.  S.  585  (1885). 


DISSOLUTION    UPON    DISAGREEMENT.  •      119 

of  the  fruits  of  misconduct.17  Upon  the  petition  of  the  inno- 
cent party  the  courts  will  decree  a  dissolution  of  the  partner- 
ship for  the  misconduct  of  a  partner.  Any  apparent  fraud, 
such  as  making  false  entries,  sequestering  the  firm  profits,  re- 
fusing to  account  for  firm  assets,  or  any  other  dishonest  and 
fraudulent  conduct  toward  a  partner  is  ground  for  applica- 
tion for  dissolution.18  The  use  of  the  firm  funds  for  private 
speculation  would  be  good  grounds  for  dissolution,  and  any 
profits  made  could  be  recovered  for  the  benefit  of  the  firm.19 
Petty  disagreements  between  the  partners  are  not  ground  for 
the  interference  of  a  court,  unless  carried  to  such  an  extreme 
as  to  prevent  the  further  mutual  conduct  of  the  business.20 

The  dissolution  of  a  partnership  through  the  courts  is  a 
costly  and  troublesome  proceeding,  and  should  be  resorted  to 
only  when  it  is  found  to  be  impossible  to  settle  differences 
peaceably,  or  when  continuance  in  the  partnership  involves 
greater  risk  and  expense  than  does  the  necessary  legal  pro- 
cedure.21 

§  82.     Misconduct  of  Partner. 

In  a  partnership  for  a  definite  term,  the  misconduct  of 
a  partner  is  ground  for  dissolving  the  relation.  The  degree 
of  misconduct  on  which  the  courts  will  act  is  not  always  clear. 
A  partner  might  be  guilty  of  many  things  which  were  objec- 
tionable to  his  associates  which  yet  would  not  be  deemed  suffi- 
cient to  justify  the  interference  of  a  court.  He  must  so 

17  i    Bates    on    P.,    §§    303,    304;    Ambler    v.    Whipple,    87    U.    S.  -546    (1874); 
Mitchell  v.   Reed,  61   N.   Y.    123    (1874). 

18  Adams    v.    Shewalter,    139    Ind.    178    (1894);    Barnes    v.    Jones,  91    Ind.  161 
(1883);    Werner    v.    Leisen,    31    Wis.    169    (1872);    Roby    v.    Colehour,  135    111.  300 
(1890);   Johnson's   Appeal,    115   Pa.    St.    129    (1886);    Caldwell   v.   Davis,  10   Colo.  481 
(1887). 

19  Holmes  v.   Gilman,    138   N.   Y.   369    (1893). 

20  2   Bates   on  P.,   §    594;   Henn  v.   Walsh,   2   Edw.   Ch.    (N.   Y.)    129    (1833). 

21  Cash  v.   Earnshaw,  66  111.  402   (1872);   Gerard  v.   Gateau,  84  111.   121 
Leyi  y.   Karrick,   8  la.    150    (1859). 


120  PARTNERSHIP   RELATIONS. 

seriously  misconduct  himself  as  to  affect  the  credit  and  suc- 
cess of  the  business,  or  as  to  make  it  impossible  for  his  asso- 
ciates to  work  with  him.22  Continued  drunkenness,23  the 
commission  of  a  crime,24  assault  upon  his  partner,  any  falsifi- 
cation of  general  partnership  accounts  or  deception  in  regard 
to  partnership  affairs,25  and  any  other  positive  abuse  of  the 
partnership  relation 26  would  furnish  sufficient  ground  for 
dissolution. 

The  fact  that  sufficient  ground  exists  for  obtaining  a 
legal  dissolution  would  be  no  justification  for  the  exclusion, 
without  legal  authority,  of  the  offending  partner  from  the 
business  by  his  associates.  In  other  words,  ground  for  legal 
dissolution  does  not  justify  expulsion.27 

§  83.     Fraud  in  the  Inception  of  the  Partnership. 

In  case  a  person  has  been  induced  to  enter  a  partnership 
by  false  representations,  he  can  have  a  dissolution  or  can  have 
the  whole  contract  rescinded  and  cancelled.  This  can  be  done 
whether  or  not  he  can  show  that  he  has  suffered  any  actual 
damage  through  the  misrepresentation.28  He  may  also  have 
an  action  at  law  against  the  partner  who  deceived  him  29  if 
damages  can  be  shown. 

In  such  case  the  misrepresentations  must  have  been  ma- 

"Leavitt  v.  Windsor  Co.,  54  Fed.  Rep.  439  (1893);  Fogg  v.  Johnston,  27 
Ala.  432  (1855). 

28  Ambler  v.   Whipple,   supra. 

24  Essell    v.    Hayward,    30    Beav.    158    (1860). 

^Cottle  v.    Leitch,    35    Cal.    434    (1868). 

28  Einstein  v.  Schnebly,  89  Fed.  Rep.  540  (1898);  Campbell  v.  Clark,  101  Fed. 
Rep.  972  (1900). 

"Ambler  v.    Whipple,   20   Wall.    546    (1874). 

28  2  Bates  on   P.,   §    595;    Parsons  on   P.,   p.    467;    Smith  v.    Everett,    126   Mass. 
304  (1879);  Richards  v.  Todd,  127  Mass.   167  (1879);  Harlow  v.  La  Brum,  151  N.  Y. 
278    (1897);   Hollister  v.    Simonson,   36   App.   Div.    (N.    Y.)    63    (1879);    Rosenstein  v. 
Burns,   41    Fed.    Rep.    841    (1882). 

29  More  v.  Rand,  60  N.   Y.  208   (1875);  Child  v.   Swain,  69  Ind.  230   (1879). 


DISSOLUTION    UPON    DISAGREEMENT.  121 

terial  and  not  mere  expressions  of  opinion.  Where  a  minor 
represents  himself  as  of  age,  his  partner  on  discovery  of  the 
fraud  may  have  the  partnership  dissolved.  A  false  represen- 
tation as  to  the  cost  of  goods  put  into  the  partnership  would 
be  ground  for  dissolution,30  while,  on  the  other  hand,  a  mere 
expression  of  opinion  as  to  the  prospective  profits,  no  matter 
how  mistaken,  would  not.  In  Harlow  v.  La  Brum,  cited  be- 
low, Justice  Gray  said: 

"The  question  of  whether  a  money  damage  has  been 
sustained  by  the  party  who  has  been  induced  to  enter  into 
a  partnership  relation  through  fraudulent  representations, 
has  nothing  to  do  with  the  decision  of  the  case  presented 
for  the  avoidance  of  the  partnership  agreement.  The 
true  principle  by  which  the  court  is  to  be  guided  in  such 
a  case  is,  that  the  party  deceived  has  a  right  to  have  the 
agreement  wholly  set  aside;  if  it  has  been  obtained  by 
fraud  he  is  entitled  to  say  that  the  misrepresentations 
vitiate  the  contract.  (Rawlins  v.  Wickham,  3  De  Gex  & 
Jones  304.)  As  was  said  by  Lord  Justice  Turner  in  that 
case,  'we  can  not  assume  from  what  was  done  in  ignor- 
ance of  the  misrepresentation  what  would  have  been  done 
if  the  misrepresentation  had  been  detected.'  The  rela- 
tion of  partners  is  one  implying  the  highest  degree  of 
mutual  confidence,  as  it  was  well  observed  in  the  opinion 
below,  and  if  the  contract  of  partnership  was  initiated 
by  fraud,  it  is  thereby  avoided  and  annulled.  The  per- 
son fraudulently  induced  to  enter  into  the  partnership  is 
entitled  to  a  decree  canceling  the  partnership  agreement 
ab  initio,  and  he  can,  also,  have  an  action  for  the  deceit." 

§  84.     Dissensions. 

It  does  not  necessarily  follow  that  because  partners  have 
dissensions  and  quarrels,  either  can  secure  a  legal  dissolution. 
Friction  and  ill  temper  may  exist,  and  the  partners  may  work 
at  cross  purposes  to  a  considerable  extent,  without  affording 

30  Bush    v.    Linthicum,    59    Md.    344    (1882). 


122 


PARTNERSHIP  RELATIONS. 


any  valid  ground  for  the  dissolution  of  the  partnership.31 
When,  however,  ill  feeling  between  the  members  of  a  firm 
reaches  such  a  point  that  it  is  impossible  to  continue  the  busi- 
ness and  there  is  no  likelihood  of  reconciliation,  the  courts  will 
grant  dissolution.32 

While  dissensions  may  not  in  themselves  furnish  ground 
for  dissolution,  they  are  very  apt  to  cause  conditions  which 
do  furnish  such  ground.  Thus,  they  may  easily  lead  to  the 
practical  exclusion  of  one  partner  from  the  conduct  of  the 
business,  which  is  a  sufficient  reason  for  a  dissolution  of  a 
firm.  (See  §  80.)  A  refusal  to  open  the  partnership  books 
to  one  partner,  or  to  keep  full  and  accurate  accounts,  or  some 
breach  of  the  articles  of  association,  are  other  consequences 
easily  arising  from  partnership  quarrels,  which  would  afford 
adequate  grounds  for  a  legal  dissolution.  In  any  case  of  this 
kind,  it  is  to  be  noted  that  dissolution  can  not  be  had  at  the 
request  of  the  offending  partner.  One  member  can  not  create 
intolerable  conditions,  and  then,  because  of  these  conditions, 
secure  a  dissolution  through  the  courts.  In  other  words,  a 
court  of  equity  will  not  assist  him  to  take  advantage  of  his 
own  wrongdoing.83 

81  z  Bates  on  P.,   §    594;   Gerard  v.   Gateau,  supra;  Henn  v.  Walsh,  supra. 
^Sutro   v.    Wagner,    23    N.    J.    Eq.    388    (1873). 

33  Gerard  v.  Gateau,  supra;  Seighortner  v.  Weissenborn,  20  N.  J.  Eq.  178 
(1869). 


CHAPTER  XVI. 
EQUITABLE  REMEDIES, 


§  85.     Dissolution. 

A  partnership,  as  already  stated,  may  be  terminated  by 
agreement  of  the  partners,  by  death,  insanity  or  bankruptcy, 
or  by  a  declaration  of  war  between  the  respective  countries 
to  which  the  partners  belong.  Apart  from  these  causes,  a 
partnership  may,  as  set  forth  in  the  preceding  chapter,  be  ter- 
minated for  certain  other  sufficient  grounds,  by  proper  legal 
proceedings.  These  proceedings  are  brought  in  a  court  of 
equity,  and  the  resulting  dissolution  involves  an  injunction, 
the  appointment  of  a  receiver  and  the  taking  of  an  account 
in  all  cases  where  these  remedies  are  requisite.  The  grounds 
for  which  recourse  may  be  had  to  a  court  of  equity  are  as 
follows : 

1.  Any  breach  of  the  partnership  articles  in  essen- 
tial matters.     (See  §  78.) 

2.  The  abandonment  of  the  partnership  business  by 
one  of  the  partners.     (See  §  79.) 

3.  The  exclusion  of  a  partner  from  participation 
in  the  partnership  business.     (See  §  80.) 

4.  Any   bad    faith    in   partnership    affairs.      (See 
§  81.) 

5.  The  misconduct  of  a  partner.     (See  §  82.) 

6.  Fraud  in  the  inception  of  the  partnership.     (See 
§  83.) 

123 


124  PARTNERSHIP   RELATIONS 

7.     Dissensions  that  can  not  be  reconciled.      (See 


8.  The  failure  or  impossibility  of  the  enterprise. 
(See  1  76.) 

9.  The  sale  of  his   interest  by  a  partner.      (See 

§73.) 

10.     The  insanity  of  a  partner.     (See  §  75.) 

In  all  of  these  cases,  proceedings  may  be  instituted  to 
have  the  partnership  dissolved  and  to  secure  an  accounting. 
If  it  is  necessary  to  enjoin  interference  by  the  offending  part- 
ner, an  injunction  will  be  granted.  (See  §  86.)  If  a  receiver 
is  requisite  to  preserve  property  or  to  prevent  injury  to  the 
business  one  will  be  appointed.  (See  §  87.) 

Partnership  liability  can  at  any  time  be  terminated  im- 
mediately by  notice  of  withdrawal  given  to  partners,  followed 
by  like  notice  to  those  dealing  with  the  firm,  and  to  outsiders 
generally,  by  publication,  but  when  this  has  been  done  it  may; 
be  necessary  to  bring  a  suit  in  equity  in  order  to  obtain  the 
formal  dissolution,  accounting  and  settlement  that  is  desired. 

A  suit  at  law  may  be  brought  for  damages  (i)  for  re- 
fusal to  form  a  partnership  in  pursuance  of  contract,1  (2)  for 
deceit  in  the  formation  of  a  partnership,2  (3)  for  wrongful 
dissolution  or  withdrawal,3  and  for  a  few  similar  causes,  but 
the  remedies  in  equity  are  usually  sought  as  they  alone  fur- 
nish the  relief  required  in  most  cases. 

§  86.     Injunction. 

When  making  application  for  dissolution  of  partnership 
an  injunction,  if  desirable,  may  usually  be  had,  restraining  the 
defendants  from  making  new  firm  obligations,  from  interfer- 

*2   Bates   on   P.,    §§    870,   871,  and  cases   cited. 
2  2  Bates  on  P.,  §   897;  see  ante  §   83. 
v.    Kirkwood,    55   Mich.    256    (1884). 

8  2  Bates  on  P.,  §§  578,  573;  Bagley  v.   Smith,   10  N.  Y.  489   (1853);   Solomon 


EQUITABLE    REMEDIES.  12$ 

ing  with  or  disposing  of  firm  property,  or  from  further  conduct 
of  the  firm  business.4  When  dissolution  is  sought  by  a  part- 
ner who  is  not  in  control,  an  injunction  is  usually  asked  and 
granted.  This  takes  the  control  of  the  business  from  the 
hands  of  the  offending  partners,  and  generally  makes  it  neces- 
sary to  appoint  a  receiver.5  (See  §  87.)  It  is  also  usually 
possible  to  secure  an  injunction  in  cases  where  a  dissolution 
is  not  desired,  but  where  it  is  sought  to  restrain  the  defendant 
partner  from  some  particular  misconduct  or  abuse  of  his  posi- 
tion. In  this  way  the  extension  of  the  partnership  business 
into  lines  other  than  those  for  which  the  relation  was  formed ; 
the  waste  of  partnership  property;  the  exclusion  of  a  partner 
from  the  business,  and  other  breaches  of  partnership  duty  may 
be  restrained.6  Usually,  however,  when  partnership  relations 
are  strained  to  this  point,  it  is  expedient  to  end  them,  and  the 
injunction  then  issues  as  a  part  of  the  procedure  of  dissolu- 
tion. 

After  dissolution,  injunction  may  be  had  to  prevent  vio- 
lation of  particular  agreements,  wrongful  use  of  trade  name, 
and  the  like.7 

§  87.     Receivership. 

The  appointment  of  a  receiver  is  an  extreme  measure  to 
be  resorted  to  only  when  the  interests  of  some  member  of  the 
firm  or  of  outside  creditors  are  in  urgent  need  of  protection. 
Such  appointments  rest  in  the  discretion  of  the  courts,  and 
these  are  slow  to  act.  They  do  not  exist  for  the  purpose  of 

4  2  High  on  Injunctions,  §    1342  et  seq. ;   Wilkinson  v.  Tilden,  9  Fed.   Rep.   683 
(1881);    New   v.    Wright,   44   Miss.    202    (1870). 

5  2   High  on  Injunctions,   §    1350  et  seq. 

6  2  Lindley  on  P.,  p.    539,   note  and  cases  cited;   2   Bates  on  P.,   §   988;   2   High 
on    Injunctions,    §    1330    et    seq.;    Rutland    Marble    Co.    v.    Whitney,    10    Wallace,    339 
(1870);    Leavitt   v.   Windsor,   etc.,   Co.,   54   Fed.    Rep.    439    (1893);    Miller  v.    O'Boyle, 
89   Fed.    Rep.    140    (1898). 

7  2   Bates   on   P.,    §    990;    2    High   on    Injunctions,    §    1345    et   seq.;    Bininger   v. 
Clark,   60  Barb.    (N.   Y.)    113    (1870);   McGowan  v.   McGowan,   22   O.    St.   370    (1872); 
contra   Wilson   v.    Fichter,    n    N.    J.    Eq.    71    (1855). 


126  PARTNERSHIP   RELATIONS. 

conducting  commercial  enterprises,8  and,  especially  before  dis- 
solution, they  must  be  convinced  that  a  real  necessity  exists 
before  they  will  take  the  partnership  affairs  out  of  the  hands 
of  the  partners  and  place  them  in  charge  of  a  receiver.  A 
standard  text-book  says: 

"A  receivership  is  not  only  an  expensive  but  it  is 
often  a  most  mischievous  and  destructive  instrumentality. 
It  may  not  only  destroy  and  ruin  a  prosperous  concern 
while  going,  but  may  reduce  to  insolvency  a  dissolved 
firm  which  would  otherwise  pay  out  in  full.  Not  only 
do  the  creditors  suffer  by  this  process,  but  the  partner 
who  has  contributed  most  capital  and  has  most  at  stake 
becomes  the  greatest  sufferer  by  a  reckless  or  unneces- 
sary resort  to  this  stringent  measure,  which  is  often  de- 
manded by  a  partner  who  has  nothing  to  lose  and  who 
is  much  at  fault.  Hence,  the  courts  will  not  grant  a  re- 
ceiver for  every  alleged  mismanagement,  and  only  when 
the  necessity  is  real  and  is  demanded  for  the  safety  of 
the  assets  and  the  protection  of  the  parties."  9  2  Bates 
on  P.,  §  993. 

It  is  only  when  the  partners  are  on  such  terms  that  it  is 
impossible  for  them  to  act  together,  and  when  the  firm  assets 
and  business  are  suffering  injury  from  these  conditions,  that 
the  court  will  take  possession  and  appoint  a  receiver  to  take 
charge  of  the  whole.10  In  the  case  of  the  death  or  insanity 
of  a  partner,  such  conditions  should  not  exist,  and  there  is 
no  cause  for  the  appointment  of  a  receiver  unless  the  remain- 
ing partner  or  partners  fail  in  their  duty  of  winding  up  the 
partnership  affairs  fairly  and  honestly.11  Nor  will  a  receiver 

8  High  on  Receivers,  §  480;  Martin  v.  Von  Schaick,  4  Paige  (N.  Y.)  479 
(1834). 

8  High  on  Receivers,  §  472  et  seq.;  Henn  v.  Walsh,  2  Edw.  Ch.  (N.  Y.)  129 
(1833). 

10  High  on  Receivers,  §  472  et  seq. ;  Einstein  v.  Schnebly,  89  Fed.  Rep.  540 
(1898);  Wolbert  v.  Harris,  7  N.  J.  Eq.  605  (1849);  Whitman  v.  Robinson,  21  Md. 
30  (1863);  Shannon  v.  Wright,  60  Md.  520  (1883);  New  v.  Wright,  44  Miss.  202 
(1870). 

11 2  Bates  on  P.,   §§    999,    1001. 


EQUITABLE    REMEDIES.  127 

be  appointed  where  the  partnership  term  has  not  expired,  and 
the  defendant  partner  is  not  at  fault. 

If  a  dissolution  is  unavoidable  or  if  the  firm  is  already 
dissolved,  there  may  be  good  reasons  for  the  appointment  of 
a  receiver  to  wind  up  the  firm  business  and  settle  its  affairs.12 
Even  in  such  cases,  however,  if  there  is  no  bad  faith,  breach 
of  articles,  insolvency  or  exclusion  of  a  partner,  the  courts 
will  not,  at  the  behest  of  a  dissatisfied  partner,  take  the  firm 
affairs  out  of  the  hands  of  a  capable  partner  or  partners  and 
place  a  receiver  in  charge.13 

When  there  are  three  or  more  partners  in  a  firm  the  court 
will  not  appoint  a  receiver  unless  satisfied  that  none  of  the 
partners  are  to  be  trusted  to  manage  the  partnership  affairs. 
On  occasion  one  of  the  partners  may  be  appointed  receiver 
of  the  partnership  affairs.  If  the  immediate  winding  up  of 
the  business  would  be  destructive  of  values,  the  court  may  au- 
thorize its  continuance  in  the  hands  of  the  receiver  until  it 
can  be  closed  out  with  the  least  loss. 

§  88.     Accounting. 

The  right  to  an  accounting  is  an  incident  of  the  partner- 
ship relation,  and  is  a  necessary  corollary  to  the  right  to 
profits.  It  would  be  of  little  avail  to  have  an  abstract  right 
to  profits,  unless  it  were  possible  to  investigate  their  amount, 
and  where  necessary  the  courts  will  enforce  this  right. 

It  is  usual  in  all  actions  for  a  dissolution  to  ask  also  for 
an  accounting,  and  if  there  are  grounds  for  the  one  there  are 
for  the  other,  as  well.  If  the  partnership  has  been  already 
dissolved,  an  accounting  may  be  had.  Whether  or  not  it  is 
specifically  asked  for  an  accounting  is  a  necessary  incident  of 
a  dissolution,  unless  the  parties  have  already  agreed  upon  a 

12  Martin    v.    Von    Sckaick,    supra;    McElvcy    v.    Lewis,    76    N.    Y.    373    (1879); 
Watson   v.    Bettman,    88    Fed.    Rep.    825    (1898). 

13  High    on    Receivers,    §    486;    Moies    v.    O'Neill,    23    N.    J.    Eq.    207    (1872); 
Simon  v.    Schloss,   48   Mich.    233    (1882);    Mason   v.    Dawson,    15    Misc.    Rep.    (N.    Y.) 
595    (1876);   Loomis   v.    McKenzie,   31    la.    425    (1871). 


128  PARTNERSHIP   RELATIONS. 

settlement,  which  would  be  a  bar  to  the  right.  If  the  part- 
nership articles  provided  a  method  of  settling  the  affairs  on 
dissolution  (see  Forms  20  and  30),  as  by  naming  a  firm  of 
professional  auditors  whose  examination  and  report  should  be 
final,  this  also  would  bar  the  right.  Unless,  however,  there 
has  been  some  such  specific  abrogation  of  the  right,  an  ac- 
counting on  dissolution  can  not  be  denied  a  partner  demand- 
ing it. 

In  those  cases  where  one  partner  has  excluded  the  other 
from  the  business,  where  one  partner  has  made  secret  profits, 
or  where  there  is  an  agreement  for  periodical  settlements,  an 
accounting  may  be  had  without  dissolution.14  Also,  if  one 
partner's  share  were  seized  on  execution  or  under  attachment, 
an  accounting  might  be  had  without  dissolution.15  Generally, 
though,  an  accounting  will  only  be  granted  in  those  cases 
where  a  dissolution  is  decreed.16 

When  an  accounting  is  granted,  the  usual  procedure  is 
to  appoint  a  referee,  or  to  refer  the  accounting  to  a  Master 
in  Chancery,  to  examine  and  report  the  terms  of  the  partner- 
ship, the  accounts  that  have  been  kept,  the  capital  invested  and 
withdrawn,  the  profits  and  the  losses,  the  assets  and  liabilities, 
and  the  proportion  in  which  these  should  be  shared  among  the 
partners.17  The  court  then  makes  its  orders  in  accordance 
with  this  report,  and  the  receiver,  or  the  partner  or  partners 
in  charge,  close  up  the  business  pursuant  to  these  directions.18 
(See  §  62;  also,  Chap.  XVII.) 

An  accounting  will  not  be  granted  for  a  special  transac- 
tion in  dispute  when  a  dissolution  is  not  asked.19 

14  2    Bates    on   P.,    §    911    et    seq.;    Sanger    v.    French,    157    N.    Y.    213    (1898); 
Leavitt  v.  Windsor  Co.,  54  Fed.  Rep.  439  (1893);  Lord  v.  Hull,   178  N.  Y.  9   (1904), 
(a   full    discussion). 

15  2  Bates  on  P.,  §  915. 
10  Parsons  on  P.,   §   206. 

17  2  Bates  on  P.,  §§   968,  810. 

18  2   Bates  on  P.,   §   811. 

"Lord   v.    Hull,    178    N.    Y.    9    (1904). 


CHAPTER  XVII. 
CLOSING  UP  THE  BUSINESS. 

§  89.     Different  Phases  of  Dissolution. 

(1)  If  one  or  more  partners  are  bought  out  the  dis- 
solution of  a  partnership  is  usually  a  simple  matter.     The 
business  passes  as  a  going  concern  into  the  hands  of  the  re- 
maining partners.     It  is  conducted  thereafter  by  the  new  firm 
but  the  name,  location,  business  and,  at  least  in  part,  the  man- 
agement is  the  same.     The  only  apparent  change  is  the  with- 
drawal of  the  retiring  partners.     Due  notice  should  be  given 
of  this  withdrawal  or  the  retiring  partners  may  be  held  for 
subsequent  liabilities  of  the  firm.1     (See  §  72.) 

(2)  If   the   business   is   terminated   by   agreement,   by 
limitation  or  by  the  death,  insanity  or  insolvency  of  a  partner, 
it  will  usually  be  wound  up  by  the  partners  acting  together, 
or  by  the  surviving  or  liquidating  partner  or  partners.     These 
will  have  no  authority  to  engage  in  any  new  business,  but  may 
fulfill  existing  contracts,  dispose  of  the  assets  to  the  best  ad- 
vantage, pay  the  debts  and  divide  whatever  remains  among 
the  respective  interests.2     (See  §  90.) 

(3)  If  the  partnership  is  dissolved  by  proceedings  in 
equity  or  in  bankruptcy,  the  receiver  or  trustee  takes  charge, 
the  partners  turn  over  the  assets  to  him  and  have  nothing 

1  Story  on  P.,  §   160;  Pringle  v.  Leverish,  97  N.  Y.   181   (1884). 

2  Story  on   P.,    §§    342,    343;    Hall   v.    Lanning,   91    U.    S.    160    (1875);    King  v. 
Leighton,   100  N.   Y.   386   (1885);   Russell  v.   McCall,   141   N.   Y.   437    (1894). 

129 


130  PARTNERSHIP   RELATIONS. 

more  to  do  with  the  business,  further  than  to  give  the  officer 
in  charge  such  information  as  will  facilitate  his  work. 

(4)  If  the  partnership  is  incorporated,  the  corporation 
usually  succeeds  to  the  assets,  name,  good-will  and  location 
of  the  firm,  and  the  business  is  continued  as  a  going  concern 
with  the  minimum  of  disturbance.  The  partners  usually  be- 
come directors  and  officers  of  the  corporation,  and  as  a  rule 
hold  all  the  stock.  (See  Part  V,  Incorporation.) 

§  90.     Surviving  and  Liquidating  Partners. 

In  case  of  the  death,  insanity  or  insolvency  of  one  of  the 
partners,  possession  of  the  business  and  assets  for  the  purpose 
of  winding  up  the  partnership  affairs  devolves  upon  the  re- 
maining partner  or  partners.3  It  follows  as  a  natural  corollary 
that  they  have  also  the  right  to  do  all  things  necessary  to  ac- 
complish this  purpose,  and  in  doing  these  they  are  not  liable 
to  interference  from  the  representatives  of  the  former  part- 
ner, unless  it  can  be  shown  that  they  have  in  some  manner 
misused  their  powers.4 

It  is  the  duty  of  surviving-  or  liquidating  partners  on 
taking  charge  to  notify  those  having  dealings  with  the  firm, 
of  its  dissolution  and  of  the  fact  that  they  are  engaged  in 
winding  up  its  affairs.  It  is  also  their  duty  to  dispose  of  and 
fulfill  any  existing  contracts,  to  dispose  of  the  partnership 
property  to  the  best  advantage,  to  discharge  all  debts  and 
obligations,5  and  to  turn  over  to  each  of  those  entitled  thereto 
their  due  proportions  of  the  surplus.6  They  have  no  power 

3  2   Bates   on   P.,    §    715;    King  v.    Leighton,    100    N.    Y.    386    (1885);    Russell   v. 
McCall,    141    N.    Y.    437    (1894);    Widderburn    v.    Widderburn,    22    Beav.    84    (1856);. 
Vetterlein  v.  Barnes,  6  Fed.  Rep.   693    (1880);   Nelson  v.  Hayner,  68  Cal.  487    (1873). 

4  Walker  v.    Trott,    4   Edw.    Ch.    38    (1840);    Williams   v.    Wheedon,    109    N.    Y. 
338    (1888);    Gable  v.    Williams,    59    Md.    46    (1882);    Shields   v.    Fuller,    4   Wise.    120 
(1854). 

5  2  Bates  on  P.,   §   726;   Bank  v.   Vanderhorst,   32   N.   Y.    553    (1865);   Williams 
v.   Wheedon,  supra. 

0  Jenks  v.  Manson,  53  Me.  208  (1865);  Heartt  v.  Walsh,  75  111.  200  (1874); 
Davis  v.  Lowell,  77  Ala.  262  (1884). 


CLOSING    UP    THE    BUSINESS.  13! 

to  bind  the  firm  to  new  contracts,  or  to  undertake  new  busi- 
ness,7 and  ordinarily  they  are  not  entitled  to  compensation 
for  their  services  in  settling  the  firm's  affairs.8 

In  settling  the  affairs  of  professional  firms  the  general 
rule  laid  down  is  not  always  equitable.  In  a  law  firm  for  ex- 
ample the  settlement  of  its  affairs  sometimes  involves  pro- 
tracted litigation  extending  over  years.  This  must  be  car- 
ried on  by  the  partners  in  charge  without  compensation  be- 
yond their  partnership  interests,  the  estate  of  the  deceased 
partner,  or  the  representatives  of  an  insane  or  insolvent  part- 
ner, participating  as  fully  as  if  the  time  and  efforts  of  their 
principals  had  been  actively  devoted  to  the  business. 

In  an  extreme  case  of  the  kind  it  is  probable  that  the 
courts  would  grant  relief,9  but  it  is  a  wise  precaution  when 
professional  partnerships  are  formed  to  provide  fully  and 
clearly  in  the  partnership  articles  for  the  interests  of  liquidat- 
ing partners.  In  Denver  v.  Roane,  cited  below,  Justice  Strong 
said: 

"There  may  possibly  be  some  reason  for  applying  a 
different  rule  to  cases  of  winding  up  partnership  be- 
tween lawyers  and  other  professional  men,  where  the 
profits  of  the  firm  are  the  result  solely  of  professional 
skill  and  labor.  No  adjudicated  cases,  however,  with 
which  we  are  acquainted,  recognize  any  such  distinction. 
And  in  the  present  case,  as  we  have  said,  the  parties  made 
arrangements  for  the  work  and  results  of  work  after  the 
death  of  any  of  their  number.  The  agreement  of  August 
13,  1869,  provided  that  in  case  of  the  death  of  any  part- 
ner, one  third  of  the  fees  in  cases  nearly  finished,  and  one 
quarter  of  the  fees  in  other  partnership  cases,  should  be- 

7  2    Bates   on   P.,    §    727    and    cases    cited. 

8  Sangston    v.    Hack,    52    Md.     173     (1879);    Denver    v.    Roane,    99    U.    S.    355 
(1878);    Burgess  v.    Badger,   82   Hun.    488    (1894);   Johnson   v.    Hartshorne,    52    N.    Y. 
180    (1873);   see  exceptions,   2   Bates  on   P.,    §§    773,   777,   and  cases  cited;   Bradley  v. 
Chamberlain,    16    Vt.    613     (1844). 

9  Sterne  v.   Goep,  20  Hun.    (N.   Y.)    396   (1880);    (affd.   84  N.   Y.   641);  see  dic- 
tum  in    Denver   v.    Roane,    supra;    Osmeat    v.    McElrath,    68    Cal.    466    (1866). 


132  PARTNERSHIP   RELATIONS 

long  to  the  representatives  of  the  decedent.  Of  course, 
it  was  contemplated  that  the  surviving  partners  should 
finish  the  work,  and  that  no  allowance  should  be  made 
to  them  beyond  the  share  of  the  fees  specified  in  the 
agreement." 

§  91.     Existing  Contracts. 

Although  surviving  or  liquidating  partners  have  no  au- 
thority to  undertake  new  business  or  to  make  new  contracts, 
they  may  complete  and  fill  orders  and  contracts  on  hand  at 
the  time  of  dissolution.  They  may  also  conduct  the  business 
for  a  limited  time,  to  give  opportunity  to  dispose  of  the  busi- 
ness to  the  best  advantage  and  to  prevent  a  sacrifice  of  the 
good-will.10  If  they  should  continue  the  business  for  any 
longer  time,  they  would  become  personally  liable  for  any 
losses  that  might  occur,  and  if  their  efforts  resulted  in  a  profit 
would  be  required  to  account  for  it.11  The  former  partner  or 
partners,  or  their  personal  representatives,  would  not  be  liable 
under  such  circumstances  on  any  contract  made  or  for  any 
losses  incurred.12 

When  a  receiver  has  been  appointed,  he  can  not,  unless 
specially  authorized  thereto  by  the  court,  actively  continue  the 
partnership  business.  This  authorization  is  rarely  given 
except  in  cases  where  a  sudden  stoppage  would  injure  the  busi- 
ness, and  damage  or  destroy  the  good-will.  Such  cases  furnish 
an  exception  to  the  well  established  principle  that  courts  will 
not  appoint  a  receiver  for  the  purpose  of  carrying  on  a  part- 
nership business.  (See  §  87.) 

A  trustee  in  bankruptcy  would  be  held  to  the  same  gen- 
eral rule,  and  should  only  continue  the  business  when  neces- 
sary in  order  to  avoid  considerable  sacrifice.13 

10  Oliver    v.    Forrester,    96    111.    315    (1880);    Denver    v.    Roane,    99    U.    S.    355 
(1878);    Schenkl   v.    Dana,    118    Mass.    236    (1875). 

11  King  v.  Leighton,  100  N.  Y.  386  (1885);  Fitzpatrick  v.  Flannagan,  106  U.   S. 
648    (1882). 

12  Bennett  v.    Buchan,   61    N.   Y.    222    (1879);    Oliver  v.    Forrester,   supra. 
-    "Bankruptcy  Act,    1898,    Sec.    2,   Clause    5. 


CLOSING    UP    THE    BUSINESS.  133 

§  92.     Sale  of  Assets. 

The  assets  of  a  liquidating  partnership  should  always  be 
sold  to  the  best  advantage,  but  the  method  of  accomplishing 
this  rests  largely  in  the  discretion  of  the  surviving  or  liquidat- 
ing partner.  He  need  not  force  sales,  thereby  sacrificing  the 
goods,  nor  is  he  compelled  to  sell  out  at  retail.14  He  may 
even  borrow  money  and  pledge  the  partnership  property  for 
its  payment.  He  may  himself  buy  the  partnership  goods  or 
property,  with  the  consent  of  the  representatives  of  the  former 
partner,15  or  if  given  the  option  to  do  so  in  the  articles.16 
Partners  may  agree  among  themselves  to  divide  and  partition 
the  firm  assets,  if  the  firm  is  solvent,  but  in  the  absence  of  such 
an  agreement,  the  property  must  be  sold.17 

A  receiver  would  likewise  be  required  to  sell  to  the  best 
advantage.  In  such  case  it  would  not  be  possible  to  settle  the 
affairs  of  the  partnership  in  any  other  way. 

Patents,  recipes,  formulae,  lands,  accounts,  good-will,  and 
anything  else  that  can  be  sold  must  be  sold.  If  there  were 
anything  which  could  not  be  sold  and  it  were  possible  to  make 
some  other  equitable  disposition  of  it,  the  court  in  its  discre- 
tion could  make  a  special  order  in  regard  to  the  matter.18 

§  93.     Disposition  of  Firm  Name,  Good-will,  Etc. 

The  good-will  of  a> business  is  often  a  most  valuable  asset, 
and,  when  possible,  the  business  should  be  so  sold  as  to  se- 
cure compensation  both  for  the  good-will  and  the  firm  name. 
To  attain  this  end,  it  is  usually  necessary  to  sell  the  business 

14  Williams  v.   Wheedon,   109  N.   Y.   333    (1888);   Durant  v.   Pierson,    124  N.    Y. 
444    (1891);    Emerson    v.    Leuter,    118    U.    S.    3    (1885). 

15  Gunn  v.   Black,   60  Fed.    Rep.    151    (1894),  and  cases  cited  on  p.    156;   Nelson 
v.  Hayner,  68  Cal.  487   (1873). 

16  Hull  v.    Cartledge,    18   App.   Div.    (N.    Y.)    54    (1897);   Harbster's   Appeal,    125 
Pa.    St.    i    (1889). 

17  2   Bates   on   P.,    §    1007. 

18  2   Bates   on   P.,    §    974. 


134  PARTNERSHIP   RELATIONS. 

as  a  going  concern,  including  good-will  and  the  right  to  use 
the  firm  name  and  any  trade-marks  that  may  belong  to  the 
business.  This  is  equitable,  for  as  all  of  the  partners  are  sup- 
posed to  have  contributed  to  the  creation  of  the  good-will  and 
to  the  value  of  the  firm  name,  such  property  should  be  dis- 
posed of  only  for  the  common  benefit.19 

It  has  been  held  that  the  firm  name  belongs  only  to  the 
firm  and  that  it  can  not  be  sold  or  transferred  in  liquidation 
except  to  a  member  of  the  firm.  It  has  also  been  held  that 
any  other  purchaser  could  secure  only  the  right  to  designate 
himself  as  "successor  to"  the  former  firm.  In  such  case,  he 
would,  however,  have  the  right  to  enjoin  any  member  of  the 
old  partnership  from  using  the  former  firm  name.  A  distinc- 
tion was  made  between  the  transfer  of  the  firm  name  to  third 
parties  and  to  surviving  partners.  While  third  parties  could 
not  secure  the  right  to  use  the  firm  name  without  an  explana- 
tory prefix,  a  surviving  partner — although  the  right  to  use 
the  firm  name  would  not  pass  to  him  on  the  death  of  his  asso- 
ciate 20 — might  secure  this  right  from  the  latter's  representa- 
tive, and  continue  business  under  the  old  name.  In  the  same 
way,  upon  the  dissolution  of  a  partnership,  one  or  more  mem- 
bers might  purchase  the  firm  name  with  the  business.21  (See 

§27.) 

In  a  late  case,  however,  the  New  York  Court  of  Appeals 
swept  away  the  distinction  between  a  sale  of  the  assets  and 
good-will  to  a  surviving  partner  and  a  sale  to  a  stranger,  and 
held  that  either  might  take  exactly  the  same  rights  in  the  use 
of  the  firm  name.  Justice  O'Brien  said : 

19  Slater  v.    Slater,    175    N.    Y.    143    (1903);    Higgins    Co.    v.    Higgins    Soap   Co., 
144    N.    Y.    463    (1895);    Freeman    v.    Freeman,    86    App.    Div.    (N.    Y.)     no    (1903); 
Caswell    v.    Hazard,    121    N.    Y.    484    (1890);    also    see    note,    15    L.    R.    A.    462,    and 
Brown  on  Trademarks,   §    530. 

20  Morgan   v.    Schuyler,    79    N.    Y.    490    (1880);    Morse   v.    Gall,    109    Mass.    409 
(1872). 

21  Merry  v.   Hoopes,   in    N.   Y.   415    (1888);   Steinfeld  v.   Nat.    Shirt  Waist  Co., 
99    App.    Div.    (N.    Y.)    286    (1904);    Menendez  v.    Holt,    128   U.    S.    514    (1888);    List- 
man   Mill   Co.    v.    William   Listman   M.    Co.,    88   Wis.    334    (1894). 


CLOSING    UP    THE    BUSINESS.  135 

"The  judgment  should  be  modified  on  the  plaintiff's 
appeal  so  as  to  direct  the  sale  of  the  good-will  with  other 
assets,  including  the  right  to  use  the  firm  name,  without 
conditons,  restriction  or  limitations  upon  the  purchaser." 
Slater  v.  Slater,  175  N.  Y.  143  (1903). 

Trade-marks  are  frequently  sold  with  the  good-will  and 
the  right  to  use  the  firm  name.  As  with  all  other  firm  prop- 
erty, such  sale  must  be  for  the  benefit  of  all  the  partners.  If 
trade  marks,  formulae,  etc.,  are  not  disposed  of  during  disso- 
lution any  member  of  the  former  firm  has  a  right  to  use  them 
thereafter.22 

§  94.     Paying  Debts. 

The  debts  of  a  partnership  must  be  paid  from  the  assets 
as  these  latter  are  converted  into  cash,  and  it  is  the  duty  of 
the  surviving  or  liquidating  partner  so  to  discharge  them.23 
Such  surviving  or  liquidating  partner  can  not,  however,  ad- 
just disputed  accounts  or  acknowledge  indebtedness  in  such 
way  as  to  diminish  or  further  bind  the  share  of  other  part- 
ners.24 Neither  would  an  acknowledgment  on  his  part  take 
a  debt  which  had  been  barred,  out  of  the  statute  of  limitation, 
nor  extend  the  time  which  it  yet  had  to  run,  so  far  as  former 
partners  were  concerned.25  Neither  would  a  part  payment 
in  such  case  affect  the  debt,  save  as  to  the  partner  making 
it.2G  The  general  principle  which  determines  the  limits  of 
his  powers  is  that  the  mutual  agency  of  the  partners  has 

22  Caswell   v.    Hazard,   supra. 

23  Preston   v.    Fitch,    137    N.    Y.    41    (1893);    Russell   v.    McCall,    141    N.    Y.    437 
(1894);   Fiske  v.   Gould,    12  Fed.   Rep.   372    (1882). 

24Pringle  v.   Leverish,   97   N.   Y.    181    (1884). 

25Hackley  v.  Patrick,  3  Johns.  (N.  Y.)  536  (1808);  Van  Kernen  v.  Parmelee, 
2  N.  Y.  -523  (1849);  Bell  v.  Morrison,  i  Peters  351  (1829). 

2(SCronklute  v.  Herrin,  15  Fed.  Rep.  888  (1883);  Winchell  v.  Hicks,  18  N.  Y. 
558  (1859);  contra  Buxton  v.  Edwards,  134  Mass.  567  (1883);  Merritt  v.  Day,  38 
N.  J.  L.  32  (1875);  Casebolt  v.  Ackerman,  46  N.  J.  L.  169  (1884);  Wood  v.  Barber, 
90  N.  C.  76  (1884). 


136 


PARTNERSHIP   RELATIONS. 


ceased,  except  for  such  purposes  as  are  necessary  in  winding 
up  the  affairs  of  the  firm,  and  consequently  the  acting  partner 
can  neither  form  new  nor  modify  existing  obligations. 

When  the  firm  is  solvent,  a  surviving  or  liquidating  part- 
ner may  use  his  discretion  in  the  payment  of  debts,  and  within 
reasonable  limits  may  pay  in  such  amounts  and  in  such  order 
as  he  chooses.27  A  receiver  or  trustee  in  bankruptcy,  on  the 
other  hand,  can  only  pay  debts  proportionally  as  he  realizes 
on  the  assets,  and  is  ordered  by  the  court.28  The  debts  of  the 
partnership  are  thus  paid,  as  far  as  assets  go,  at  the  same 
time  and  in  equal  proportions,  without  preference. 

§  95.     Marshalling  Assets. 

When  a  firm  is  being  wound  up  the  proceeds  of  the  part- 
nership assets  must  be  first  applied  to  payment  of  firm  debts. 
Each  partner  has  a  right  to  have  the  partnership  property 
thus  applied  to  the  settlement  of  the  partnership  obligations 
before  any  is  withdrawn  or  applied  to  individual  debts  of  the 
partners.  This  right  is  awkwardly  termed  his  partnership 
lien.29  Corresponding  to  it  is  the  right  of  the  firm  creditors 
to  have  their  claims  paid  before  any  of  the  assets  are  applied 
to  the  satisfaction  of  creditors  of  individual  members  of  the 
firm,  and  before  anything  is  divided  among  the  partners. 

In  cases  of  insolvency,  the  partnership  creditors  are  first 
paid  in  full.  If  any  assets  then  remain  they  are  applied  to 
payment  of  the  creditors  of  the  different  members,  or,  if  any 
partner  has  no  individual  obligations  in  evidence,  he  is  en- 
titled to  receive  his  proportion  of  the  remaining  assets  undi- 
minished. 

In  the  dissolution  of  solvent  firms,  after  the  partnership 
obligations  have  been  settled,  advances  made  by  any  partner 

27  Emerson  v.    Senter,    118  U.    S.   3    (1885). 

28  Beach  on   Receivers,   §   467. 

28  2   Bates  on  P.,   §    820;   Case  v.    Beauregard,   99   U.    S.    119    (1878). 


CLOSING    UP    THE    BUSINESS.  137 

are  returned,  and  then  if  the  assets  are  sufficient,  each  part- 
ner receives  back  his  capital,  and  any  remainder  is  divided  as 
profits.  (See  §  96.) 

If  a  partner  has  property  outside  of  his  partnership  in-" 
vestment,  his  individual  creditors  have  the  first  right  to  satisfy 
their  claims  from  this  individual  property.  Then,  after  these 
claims  are  satisfied  in  full,  if  there  are  still  individual  assets 
remaining,  any  unsatisfied  partnership  creditors  are  entitled 
to  them  to  the  full  extent  of  their  claims.30 

In  other  words,  the  firm  creditors  and  the  individual 
creditors  form  two  classes.  The  firm  creditors  have  the  right 
to  be  paid  from  the  firm  assets  before  anything  is  applied  to 
or  taken  by  individual  creditors,  while  the  individual  creditors 
have  the  right  to  be  paid  from  the  individual  property,  before 
any  is  taken  for  the  firm  creditors.  Applying  the  partnership 
and  individual  property  in  this  manner  is  termed  "Marshalling 
the  Assets."  31 

§  96.     Dividing  the  Remaining  Assets. 

After  the  assets  of  the  firm  have  been  turned  into  cash 
and  the  debts  have  been  paid,  it  is  the  duty  of  the  surviving 
or  liquidating  partners  to  apportion  the  remaining  funds 
among  themselves  and  the  representatives  of  any  former  part- 
ners.32 

The  distribution  of  the  surplus  should  be  as  follows : 
Any  advances  above  the  stipulated  investment  of  capital 
must  first  be  repaid  to  the  partners  who  made  them.  If  the 
funds  permit  the  capital  of  each  partner  must  then  be  returned. 
Any  surplus  still  remaining  would  represent  the  profits  of  the 
business  and  would  be  divided  among  the  partners  in  such 

30  2   Bates  on   P.,    §    825,   and  cases   cited. 

31  Wilder   v.    Keeler,    3    Paige    Ch.    167    (1832);    Hewitt   v.    Northrup,    75    N.    Y. 
506    (1878). 

32  Whitcomb    v.    Converse,    119    Mass.    38    (1875). 


138  PARTNERSHIP   RELATIONS. 

proportion  as  the  partnership  agreement  might  provide,  or 
in  the  absence  of  any  provision  therefor,  in  equal  propor- 
tion.33 

If  the  proceeds  from  the  partnership  assets  do  not  suffice 
to  return  the  partnership  investment,  it  shows  that  the  busi- 
ness has  been  conducted  at  a  loss  to  the  amount  of  the  de- 
ficiency. This  loss  must  be  apportioned  among  the  partners 
as  may  be  provided  in  the  partnership  articles,  or,  in  the  ab- 
sence of  such  provision,  would  be  borne  by  them  equally.  In 
either  case  the  loss  of  each  partner  would  be  deducted  from 
the  amount  of  his  investment  and  the  remainder,  if  any,  paid 
over  to  him  in  settlement  of  the  partnership  accounts. 

If  gains  and  losses  are  to  be  shared  equally  the  lesser  in- 
vestor may,  as  a  result  of  losses,  be  in  debt  to  his  partner.  If 
under  such  arrangement,  A  puts  in  $5,000  and  B  invests  $1,000 
and  a  loss  of  $3,000  is  incurred,  B's  share  of  the  loss  would 
be  $1,500.  On  dissolution  this  would  be  charged  up  against 
his  investment  of  $1,000,  cancelling  it  and  leaving  him  in- 
debted to  his  partner  to  the  amount  of  $500. 

38  2    Bates   on   P.,    §    811;    2   Lindley   on   P.,   pp.    402,   973. 


PART  V.— INCORPORATION. 


CHAPTER  XVIII. 

PARTNERSHIP    COMPARED    WITH 
CORPORATION. 


§  97.     Mutual  Agency  and  Corporate  Agency. 

In  a  partnership  every  general  partner  is  a  general  agent 
for  the  firm  and  has  full  authority  to  bind  it  by  any  contracts 
made  in  the  scope  of  its  ordinary  business.  In  a  corporation, 
on  the  other  hand,  this  power  of  binding  the  whole  body  is 
carefully  safeguarded.  Membership  or  ownership  of  stock 
gives  no  right  to  act  for  the  corporation  nor  does  this  right 
inhere  in  any  individual  official  position.  The  board  of  direc- 
tors  alone  has  power  to  bind  the  corporation  by  its  action, 
and  this  opwer  must  be  exercised  by  the  board  as  a  whole, 
not  by  the  individuals  composing  it.  A  single  director  acting 
alone  has  no  more  ability  to  bind  the  corporation  than  has 
any  other  member  or  stockholder.  Effective  action  is  secured 
only  by  motions  and  resolutions  which  may  only  be  passed  by 
the  board  at  legal  meetings  and  by  a  majority  of  a  quorum 
there  present.  The  board  elects  officers  and  appoints  agents 
to  carry  out  its  will,  but  these  have  only  such  definite  powers 
as  are  given  them  by  the  by-laws  or  the  resolutions  of  the 
board  of  directors.  In  practice,  corporation  officers  exercise 
many  powers  which  are  not  expressly  given  them,  but  these 

139 


140  PARTNERSHIP   RELATIONS. 

are  held  to  have  been  authorized  by  the  corporation  since  it 
has  allowed  their  assumption.  These,  moreover,  pertain 
merely  to  routine  business,  and  do  not  in  any  way  approach 
or  compare  with  the  wide  discretionary  powers  of  a  partner. 

§  98.     Comparative  Liability  Under  Each  System. 

Under  the  partnership  system  each  general  partner,  in 
case  of  insolvency,  is  liable  to  the  entire  extent  of  his  fortune. 
Any  partner  may,  through  an  injudicious  contract,  bankrupt 
the  firm,  and  then  each  general  partner,  regardless  of  the 
amount  of  his  investment,  is  bound  to  meet  the  obligations  of 
the  firm  as  far  as  his  resources  permit.  This  dangerous  part- 
nership liability  can  not  be  in  any  way  avoided  by  a  general 
partner,  and  it  is  this  which  drives  so  many  enterprises  into 
the  corporate  form. 

Under  the  corporate  system  an  entirely  different  rule  pre- 
vails. Each  stockholder  is  liable  only  for  the  amount  he  has 
subscribed.  When  that  is  paid  he  has  no  further  liability  of 
any  kind.  The  corporation  has  been  launched,  and  whoever 
gives  it  credit  does  so  on  its  property  and  repute,  and  not  on 
faith  in  the  men  composing  it.  So  it  comes  about  that  while, 
under  the  corporate  system  there  is  no  limit  to  the  amount  of 
profits  which  a  stockholder  may  receive,  his  risk  of  loss  is  ab- 
solutely restricted  to  the  amount  he  has  invested. 

Sometimes  stock  in  a  corporation  is  paid  for  in  property, 
such  as  a  mine,  an  invention,  a  going  business  or  the  like. 
(See  §  112.)  In  most  of  the  states  of  the  Union  such  pay- 
ment is  good,  unless  there  is  fraud  in  the  transaction  or  such 
excessive  overvaluation  as  would  imply  fraud.  If  stock  is 
paid  for  fraudulently,  and  the  corporation  thereafter  becomes 
insolvent,  the  original  holder  may  be  held  liable  for  the  dif- 
ference between  the  real  value  of  the  property  and  the  face 
value  of  the  stock.  Ordinarily,  however,  the  original  invest- 


PARTNERSHIP    COMPARED   WITH    CORPORATION.  14! 

ment  is  the  measure  of  liability.     This  may  be  lost  but  noth- 
ing further. 

§  99.     Advantage  of  the  Stock  Plan. 

When  a  corporation  is  formed  it  is  capitalized  at  a  cer- 
tain amount  known  as  its  capital  stock.  This  capital  stock 
represents  the  property  and  business  of  the  corporation.  It  is 
divided  into  shares,  usually  of  one  hundred  dollars  each, 
known  as  shares  of  stock.  Each  holder  of  stock  measures 
his  interest  in  the  corporation,  his  voting  power  in  the  cor- 
porate meetings  and  his  proportion  of  the  profits  by  the  num- 
ber of  these  shares  he  owns.  When  a  purchaser  has  paid  for 
his  stock,  he  is  entitled  to  a  transferable  certificate  or  certifi- 
cates, signed  by  appointed  officers  of  the  corporation,  certify- 
ing the  number  of  shares  he  owns.  These  certificates  are 
quasi  negotiable,  may  be  assigned  in  blank  and  then  passed 
from  hand  to  hand  freely. 

This  system,  owing  to  its  convenience,  its  ready  measure 
of  a  stockholder's  interest,  and  the  facility  with  which  it  per- 
mits this  interest  to  be  transferred  or  used  as  collateral,  is 
especially  attractive  to  investors,  and  gives  the  corporation 
great  advantages  over  the  partnership.  In  case  a  participant 
in  an  enterprise  wishes  to  withdraw,  or  to  divide  or  transfer 
his  interest,  it  is  easily  done,  without  dissolution  or  disturb- 
ance of  any  kind  in  the  corporate  affairs.  In  case  of  his 
death,  with  the  consequent  necessity  of  settling  his  affairs, 
his  interest  is  in  the  most  convenient  shape  for  sale  or  trans- 
ferance  to  his  devisees,  in  striking  contrast  to  the  tedious  and 
somewhat  uncertain  disposition  of  a  partnership  interest  in 
case  of  a  partner's  death. 

§  100.     Management  of  Corporations. 

The  stockholders  of  a  corporation  meet  once  each  year 
in  annual  meeting  for  the  purpose  of  electing  directors.  The 


142 


PARTNERSHIP   RELATIONS. 


directors  so  elected  control  and  manage  the  property  and  busi- 
ness of  the  corporation,  limited,  however,  by  the  restrictions 
of  the  by-laws.  The  directors  meet  usually  once  a  month  in 
regular  meeting.  They  express  their  will  by  means  of  resolu- 
tions, and  elect  officers  and  appoint  agents  to  carry  these  reso- 
lutions into  effect.  The  several  functions  of  the  stockholders, 
directors  and  officers  are  prescribed  by  law  and  usage,  modi- 
fied to  suit  the  circumstances  of  each  particular  case.  The 
whole  makes  a  smooth,  well-working  business  mechanism, 
equally  effective  for  the  close  corporation  with  but  a  few 
members  and  the  large  industrial  combination  with  its  thou- 
sands of  widely  scattered  stockholders. 

Like  the  federal  system  of  government,  the  corporate  or- 
ganization is  based  on  a  division  of  powers  and  the  operation 
of  mutual  checks  and  balances.  If  well  arranged  and  properly 
conducted  its  operation  is  effective  and  satisfactory.  It  is  to 
be  noted,  though,  that  this  ideal  system  is  not  ordinarily  at- 
tained. Frequently  it  is  lost  through  ignorance,  negligence 
or  lack  of  experience.  Promoters  and  exploiters  often  de- 
liberately set  aside  the  checks  and  safeguards  that  should 
protect  the  stockholders.  A  charter  and  by-laws  well  adapted 
for  some  particular  business  and  set  of  conditions  are  often 
duplicated  for  another  corporation  with  different  circum- 
stances and  aims.  Other  errors  are  frequently  made  tending 
to  diminish  the  effectiveness  of  the  system.  To  secure  the 
full  advantages  of  incorporation,  skill  ar^d  experience  must 
be  employed  both  in  the  organization  of  the  corporation  and 
in  its  management. 

§  101.     Expenses  Incident  to  Incorporation. 

The  direct  expenses  of  incorporation  are  the  initial  tax 
paid  the  state  authorities  for  the  privilege  of  incorporation, 
counsel  fees,  the  incidental  fees  for  filing  and  acknowledg- 
ments and  the  cost  of  the  special  books  and  corporate  equip- 


PARTNERSHIP    COMPARED   WITH    CORPORATION.  143 

ment.  After  this  the  expenses  are  approximately  the  same 
as  if  the  business  were  conducted  as  a  partnership,  save  for 
the  annual  franchise  tax  imposed  in  some  states,  and,  possibly, 
an  increase  of  property  taxation,  owing  to  the  greater  diffi- 
culty of  evasion  under  the  corporate  form. 

The  annual  franchise  tax  is  in  some  states  a  rather  oner- 
ous burden.  In  New  Jersey,  it  amounts  to  one-tenth  of  one 
per  cent,  of  the  issued  stock.  In  Pennsylvania  it  is  one-third 
of  one  per  cent,  on  the  actual  value  of  the  capital  stock.  In 
most  states  where  there  is  a  special  tax  on  corporations,  an 
exemption  is  allowed  for  those  engaged  in  manufacturing  in 
the  state.  Each  state  has  its  own  laws  on  this  subject,  and 
the  matter  should  be  investigated  before  incorporation. 

Land  taxes  and  local  taxes  are  usually  the  same  for  cor- 
porations as  for  partnerships  or  individuals.  In  New  York 
a  partnership  as  such  is  not  taxed,  but  the  individuals  com- 
posing a  partnership  are  supposed  to  pay  taxes  on  their  invest- 
ment in  the  partnership.  A  corporation  on  the  contrary  is 
taxed  directly  and  its  stockholders  are  exempt  as  far  as  the 
corporate  property  is  concerned.  As  individuals  often  evade 
more  or  less  of  their  local  taxes  in  ways  not  available  to  cor- 
porations, it  sometimes  happens  that  incorporation  results  in 
increased  taxation. 

§  102.     Resume. 

The  two  systems — partnership  and  incorporation — may 
be  briefly  compared  as  follows: 

1.  Each  partner  is  an  agent  for  the  firm  and  can  bind 
it  by  his  actions.     A  corporation  may  only  be  bound  by  its 
duly  authorized  officers. 

2.  In  a  partnership  each  partner  is  liable  without  limit 
for  all  the  obligations  of  the  firm.     In  a  corporation  each 
stockholder  is  liable  only  for  the  amount  unpaid  on  his  stock. 


144  PARTNERSHIP   RELATIONS. 

3.  In  a  partnership  each  partner's  share  is  indivisible 
and  non-transferable.     In  a  corporation  the  stock  system  per- 
mits an  exact  and  easy  subdivision  of  interests  and  their  trans- 
fer by  mere  assignment  as  often  as  desired. 

4.  The  management  of  a  partnership  is  a  matter  of 
agreement  among  the  partners,  and,  owing  to  the  right  to 
bind  and  contract  possessed  by  every  member  of  a  firm,  is 
liable  to  be  indefinite  and  uncertain.     The  management  of  a 
corporation  is  prescribed  by  its  charter,  its  by-laws  and  the 
statutes  of  the  state  in  which  it  is  incorporated,  and  the  powers 
of  stockholders,  directors  and  officers  are  definitely  outlined. 

5.  The  necessary  expenses  and  taxation  of  a  partner- 
ship may  be  less  than  the  expenses  incident  to  organizing  and 
maintaining  a  corporation.     To  deternr'ne  the  relative  costs 
with  exactness  requires  a  special  investigation  in  each  specific 
case. 

6.  The  rights  and  powers  of  a  minority  are  frequently 
greater  and  more  easily  protected  in  a  partnership  than  in  a 
corporation.     In  either  case  it  depends  largely  upon  the  pre- 
liminary arrangements  and  agreements  and  the  ability  of  the 
minority  to  enforce  the  right  really  possessed.    The  matter  is 
discussed  in  the  following  chapter. 


CHAPTER  XIX. 
PRACTICAL  CONSIDERATIONS. 

§  103.     Control  of  Corporations. 

The  relations  of  the  partnership  are  fundamentally  differ- 
ent from  those  of  the  corporation. 

In  a  partnership  of  two,  for  instance,  unless  expressly 
otherwise  agreed,  each  has  an  equal  voice  in  the  management, 
regardless  of  the  amount  of  the  respective  investments.  In 
the  event  of  a  divergence  of  views  on  any  important  matter, 
a  deadlock  results,  and  either  a  compromise  must  be  effected 
or  the  proposed  measure  be  given  up.  If  one  partner  is  dis- 
satisfied with  the  conduct  of  his  associate,  he  may  dissolve 
the  partnership  and  withdraw  his  capital. 

If  these  same  partners  incorporate  their  business  the  con- 
ditions are  radically  different.  Then,  unless  otherwise  ex- 
pressly agreed  and  arranged,  the  amount  of  investment  con- 
trols. The  corporate  affairs  are  managed  by  a  board  of  direc- 
tors elected  by  the  stockholders,  and  the  partner  with  the 
larger  investment  would  elect  the  majority  of  this  board,  and 
through  it  control  the  business  of  the  corporation.  There 
could  be  no  deadlock  nor  necessity  for  compromise  no  mat- 
ter what  the  divergence  of  views.  The  dissatisfied  party  could 
only  submit  and  it  would  be  impossible  for  him  to  withdraw 
his  capital  and  break  up  the  organization  as  he  might  have 
done  in  the  partnership.  He  may  sell  his  stock  if  he  can,  but 

145 


146  PARTNERSHIP   RELATIONS 

if  not  his  capital  must  remain  subject  to  the  control  of  his 
former  partner. 

Again  a  dissatisfied  minority  partner  sometimes  brings 
pressure  to  bear  upon  his  associates  by  threatening  to  dissolve 
the  partnership,  or  by  exercising  his  partnership  authority  to 
the  detriment  of  the  firm,  until,  as  a  measure  of  protection, 
they  buy  him  out.  In  the  corporation  he  has  no  such  power. 
He  can  not  withdraw  his  capital,  and,  if  the  majority  ignore 
him,  or  displease  him  in  other  ways,  his  only  means  of  re- 
lief is  the  sale  of  his  stock.  Under  the  circumstances  his  stock 
would  not  be  an  attractive  investment  and  even  this  avenue 
of  escape  might  be  closed. 

It  is  apparent  that  under  the  ordinary  arrangements  of 
the  corporate  system  the  majority  interests  are  in  a  safer  and 
much  better  position  than  under  the  partnership ;  also  that  the 
position  of  the  minority  interest  is  not  so  good.  It  is  also 
true  that  because  of  this  menace  to  the  minority  interests, 
many  businesses  are  still  maintained  in  partnerships  that  would 
be  much  more  advantageously  conducted  under  the  corporate 
form,  and  if  this  risk  could  not  be  avoided  the  advisability  of 
incorporation  would,  for  minority  interests,  be  very  doubt- 
ful. 

It  is  to  be  noted,  however,  that  by  proper  arrangement, 
the  minority  interests  may  be  properly  and  fully  protected  un- 
der the  corporate  form.  Such  arrangement  must  usually  be 
made  at  the  time  of  incorporation,  but  given  competent  at- 
torneys at  that  time,  they  can  secure  any  measure  of  repre- 
sentation or  protection  that  may  be  necessary  or  desired. 

§  104.     Protection  of  Minority  Interests. 

The  matter  of  protecting  minority  interests  is  one  requir- 
ing skilful  professional  counsel.  The  methods  vary  with  the 
conditions.  If  the  minority  interests  are  in  a  position  to  de- 
mand equal  voting  power,  the  protection  so  secured  is  effective 


PRACTICAL    CONSIDERATIONS.  147 

and  complete.  The  arrangement  may  be  carried  out  (i)  by 
giving  the  minority  interests  half  of  the  voting  stock,  or  (2) 
by  giving  the  minority  stock  the  right  to  elect  half  the  direc- 
tors. 

For  instance,  a  partnership  in  which  A  had  $10,000  and 
B  $20,000  might  be  incorporated  with  a  capital  stock  of 
$30,000  in  order  to  represent  and  provide  for  the  exact  part- 
nership interests.  Of  this  total,  $20,000  alone  might  be  given 
the  voting  power,  the  other  $10,000  being  non-voting  stock. 
The  voting  stock  would  then  be  divided  equally  between  the 
partners,  while  the  $10,000  of  non-voting  stock  would  go  to 
B  to  cover  his  excess  investment.  This  would  give  him  an 
additional  third  of  the  stock  and  therefore  of  the  profits  but 
would  not  give  him  any  more  control  of  the  business  than  was 
possessed  by  A.  Each  would  vote  $10,000  of  stock  and  there- 
fore have  equal  voice  in  the  management.  If  it  were  desired 
to  limit  B's  returns  on  his  excess  investment,  his  extra  $10,000 
might  be  provided  for  by  non-voting  preferred  stock  draw- 
ing a  limited  dividend,  or  it  might  be  made  up  in  bonds  draw- 
ing interest.  In  this  case  B  would  first  receive  interest  on  his 
excess  investment  in-  the  shape  of  his  dividend  on  the  pre- 
ferred stock  or  interest  on  his  bonds,  and  then  both  would 
participate  equally  in  any  remaining  profits.  The  voting 
power  would  be  equal  as  before. 

Under  the  other  plan  the  stock  would  be  divided  into 
two  classes,  $10,000  of  stock  in  the  one  and  $20,000  in  the 
other,  but  each  class  would  be  empowered  to  elect  exactly  the 
same  number  of  directors.  Then,  the  stock  being  divided  as 
before,  A's  $10,000  worth  of  stock  would  elect,  say  two  direc- 
tors, and  B's  $20,000  of  stock  would  also  elect  but  two  direc- 
tors, thus  giving  each  interest  equal  representation.  When 
the  profits  are  divided,  B  would  have  two-thirds  because  of 
his  stock  preponderance. 

These  plans  may  be  varied  and  arranged  in  many  more 


148  PARTNERSHIP   RELATIONS. 

or  less  complicated  forms  to  meet  any  desired  conditions  and 
to  do  justice  to  the  differing  interests  concerned.  In  some 
few  states  they  would  not  be  available  on  account  of  prohibi- 
tions in  the  laws  against  varying  the  voting  power  of  stock. 

§  105.     Cumulative  Voting. 

Another  means  of  protection  for  the  minority  is  the  em- 
ployment of  cumulative  voting.  This  operates  to  secure  for 
the  minority,  representation  on  the  board  of  directors.  It  can 
under  no  circumstances  give  anything  more  than  representa- 
tion. It  can  not  give  equality  of  power  to  the  minority,  but 
it  can  assure  the  election  of  one  or  more  directors,  who  may 
attend  board  meetings  and  watch  matters  in  the  interests  of 
the  minority.  The  mere  presence  of  a  capable  minority  rep- 
resentative prevents  many  abuses  of  power  that  would  other- 
wise occur.  Also,  if  any  unfair  dealing  is  contemplated  it 
must  be  brought  up  in  the  board  of  directors.  Of  this  the 
minority,  through  their  representatives,  will  be  informed  and 
may  take  legal  action  for  its  prevention. 

The  distinction  between  the  ordinary  system  of  voting 
and  the  cumulative  system  lies  entirely  in  the  manner  in  which 
the  votes  are  cast.  Under  the  ordinary  system  each  share  of 
stock  entitles  its  holder  to  one  vote  for  each  director  to  be 
elected,  but  this  vote  may  only  be  cast  in  the  prescribed  man- 
ner— one  vote  to  a  candidate  up  to  the  number  of  directors 
to  be  elected.  In  the  cumulative  system  on  the  contrary,  while 
each  share,  as  before,  entitles  its  holder  to  but  one  vote  for 
each  director  to  be  elected,  these  votes  may  be  cumulated  on 
one  or  two  of  the  candidates  at  the  discretion  of  the  voter. 
The  number  of  votes  to  which  he  is  entitled  is  determined 
by  multiplying  the  number  of  his  shares  by  the  number  of  the 
directors  to  be  elected  and  these  votes  may  then  be  cast  all 
for  one  candidate,  or  may  be  apportioned  out  among  them  at 
the  will  of  the  voter.  As  a  result  the  holders  of  minority 


PRACTICAL    CONSIDERATIONS.  149 

stock  who,  under  the  ordinary  system  of  voting,  are  left  ab- 
solutely without  representation  among  the  directors,  may,  if 
their  holdings  are  at  all  material,  unfailingly  elect  one  or  more 
directors  and  thereby  secure  representation  on  the  board. 

The  State  Constitution  of  Pennsylvania  prescribes  the 
system  as  follows: 

"In  all  elections  for  directors  or  managers  of  a  cor- 
poration, each  member  or  shareholder  may  cast  the  whole 
number  of  his  votes  for  one  candidate  or  distribute  them 
upon  two  or  more  candidates  as  he  may  prefer/' 

In  most  other  states  the  same  arrangement  may  be  had 
by  proper  provisions  in  the  charter  or  the  by-laws.  It  is  al- 
ways expedient  to  secure  'the  system  as  it  can  not  work  dis- 
advantageously  and  may  on  occasion  prove  of  great  ad- 
vantage.1 

§  106.     Voting  Trusts. 

The  voting  trust  is  also  used  at  times  for  the  protection 
of  minority  interests,  as  well  as  to  insure  the  general  stability 
of  corporate  management.  Under  this  arrangement  the  stock 
of  a  corporation  or  a  majority  of  its  stock  is  placed  in  the 
hands  of  trustees  who  hold  it  in  their  own  names  in  trust  for 
the  stockholders,  voting  it  as  directed  in  the  voting  trust 
agreement  and  drawing  any  dividends  and  distributing  them 
among  the  real  owners  according  to  their  interests. 

The  voting  trust  is  often  a  satisfactory  means  of  pre- 
serving an  agreed  corporate  management  for  a  term  of  years.2 
The  objection  to  it  is  that  it  can  usually  be  maintained  only 
for  a  limited  term.  In  the  State  of  New  York  the  statutes 
provide  that  such  trusts  shall  not  last  longer  than  five  years. 
In  most  of  the  other  states,  the  status  and  term  of  the  voting 

1  See   §    231,    Conyngton   on   Corp.    Organization. 

2  See   Chap.    XJCV,    Conyngton    on    Corp.    Organization. 


150  PARTNERSHIP   RELATIONS. 

trusts  are  not  so  clear  but  it  is  doubtful  whether  they  would  be 
upheld  for  a  materially  longer  term.3 

In  the  case  of  the  incorporation  of  a  partnership,  if  a 
voting  trust  were  formed,  the  partners  themselves  would 
probably  act  as  trustees.  In  this  case  they  would  take  and 
hold  their  own  stock  in  trust  and  vote  it  as  a  whole  to  elect 
a  named  board  each  year.  Under  this  arrangement  the  man- 
agement of  the  corporation  is  a  matter  of  agreement  among 
the  stockholders.  A  satisfactory  board  is  decided  upon  and 
then  year  after  year  is  maintained  as  agreed.  Some  provision 
is  usually  made  for  the  selection  of  a  new  member  of  the 
board  in  case  any  of  the  original  members  die  or  resign. 

When  a  voting  trust  is  formed  the  stock  is  actually  as- 
signed to  the  trustees,  who  hold  the  certificates  while  the  trust 
lasts.  This  deprives  the  legal  owners  of  the  power  to  inter- 
fere or  change  the  situation  until  the  termination  of  the  trust. 
The  trustees  usually  issue  certificates  to  the  owners  for  the 
stock  turned  in  and  these  certificates  may  be  transferred  if 
desired.  For  selling  or  for  use  as  collateral  they  are  not, 
however,  usually  as  available  as  the  stock  itself. 

§  107.     Provisions  Against  Selling  Stock. 

In  the  incorporation  of  a  partnership  it  is  often  desirable 
to  restrict  the  sale  of  stock,  in  order  to  prevent  its  coming 
into  the  hands  of  objectionable  stockholders,  or  for  other  busi- 
ness reasons.  Where  this  restriction  is  only  desired  for  a 
limited  period,  the  voting  trust  would  be  effective  and  probably 
the  most  satisfactory  method  to  employ. 

For  longer  periods  direct  agreements  not  to  sell  are  some- 
times entered  into.  Generally,  however,  the  courts  do  not  ap- 
prove of  agreements  interfering  with  the  free  transfer  of  stock, 

8  Chapman  v.  Bates,  47  Atl.  Rep.  638  (1900);  Brightman  v.  Bates,  175  Mass. 
105  (1900);  Whitehead  v.  Sweet,  126  Cal.  67  (1899);  Mobile,  etc.,  Co.  v.  Nicholas, 
98  Ala.  92  (1893). 


PRACTICAL    CONSIDERATIONS.  15! 

and  such  arrangements  are  difficult  to  make  and  enforce.  The 
usual  plan  is  not  to  forbid  directly  the  sale  of  stock  but  to  pro- 
vide that  it  shall  be  offered  to  the  other  associates  before  being 
sold  elsewhere.  If,  however,  the  stock  were  sold  despite  any 
such  agreement,  the  associates  could  not  set  the  sale  aside 
and  would  have  no  remedy  save  an  empty  suit  for  damages 
against  the  offending  party.4 

In  New  York  it  has  been  decided  that  parties  may  agree 
to  deposit  their  certificates  of  stock  with  a  trust  company  for 
a  specified  period,  not  to  be  withdrawn  or  sold  without  mutual 
consent.5  This  method  is  simple  and  effective.  It  has  also 
been  decided  in  New  York  that  stockholders  may*  form  a 
special  partnership  for  the  holding  of  their  stock  and  have 
the  certificates  issued  to  them  jointly  under  the  agreement 
that  the  certificates  shall  not  be  sold,  exchanged  or  pledged  for 
ten  years  except  by  consent  of  all  interested.6  This  is  effective 
but  somewhat  cumbrous. 

Various  other  provisions  and  decisions  exist  in  the  differ- 
ent states  as  to  restrictions  on  the  sale  of  stock.  It  is  not 
necessary  to  say  that  any  such  arrangements  should  be  made 
by  skilful  counsel  and  only  after  careful  consideration  of  the 
particular  case  and  the  law  of  the  particular  state. 

*  2    Cook  on   Corporation,    §    6220,    note   2. 

6  Williams    v.    Montgomery,     148    N.    Y.     519     (1896). 

6  Hey    v.    Dolphin,    92    Hun    (N.    Y.)    230    (1895.) 


CHAPTER  XX. 
PROCEDURE  FOR  INCORPORATION. 


§  108.     Preliminary  Agreement. 

When  the  business  of  a  firm  is  to  be  incorporated  the 
various  details  of  the  change  must  be  agreed  upon  as  a  first 
step.  The  name,  the  capital  stock,  the  proportional  share  of 
each  partner  in  this  stock,  the  representation  of  each  on  the 
board  of  directors,  the  official  positions  the  partners  will  re- 
spectively occupy  in  the  corporation,  the  salaries  to  be  paid 
each,  and  the  other  important  features  should  all  be  embodied 
in  a  preliminary  agreement. 

The  following  general  points  should  be  covered : 

1 .  Name. 

2.  Purposes. 

3.  Duration. 

4.  Capitalization  and  value  of  shares. 

5.  Stock:      Classes — common,   preferred,   non-vot- 

ing. 

The  terms  and  description  of  each. 

The  distribution  of  the  stock  so  as  to 
give  each  partner  his  due  repre- 
sentation and  share  of  profits. 

6.  Directors — number  and  any  qualifications. 

7.  Officers — powers  of  same — salaries. 

Incumbents  for  each  office. 

8.  Any  arrangements  as  to  finance  and  property. 

9.  Any  arrangements  as  to  transfer  of  firm  assets 

to  the  corporation. 

152 


PROCEDURE    FOR    INCORPORATION.  153 

§  109.     The  Name. 

If  the  partnership  name  is  valuable  and  its  preservation 
is  desirable,  it  may  usually  be  retained  in  some  form  as  the 
corporate  name.  In  some  states  the  firm  name  may  be  adopted 
without  change  of  any  kind.  This  is,  however,  open  to  ob- 
jection as  there  is  then  nothing  in  the  name  to  indicate  that 
the  concern  is  a  corporation,  and  parties  transacting  business 
with  it  might,  unless  informed  in  advance  of  its  corporate 
nature,  be  able  to  hold  the  stockholders  as  partners. 

Usually  the  firm  name  is  retained  with  the  addition  of 
Company,  the  firm  of  "Rogers  &  Gannon"  becoming  on  incor- 
poration the  "Rogers  &  Gannon  Company,"  or  perhaps  the 
"Rogers-Gannon  Company."  Another  method  of  avoiding 
any  possibility  of  liability  is  to  add  the  word  incorporated,  as 
"Rogers  &  Gannon,  Incorporated,"  this  last  word  being 
abbreviated  in  written  or  printed  matter  to  "Inc." 

In  most  of  the  states  the  word  "The"  may  be  made  a  part 
of  the  corporate  name  if  desired.  In  a  few  states  it  is  obli- 
gatory. It  sometimes  involves  awkward  verbal  constructions, 
and  hence,  is  usually  avoided. 

§  no.     Charter  Provisions. 

The  charter  is  the  instrument  granted  by  the  state  by 
which  the  corporation  is  created  and  under  which  it  exists. 
It  corresponds  to  the  constitution  of  a  state. 

Certain  features  of  the  corporation,  as  the  name,  pur- 
poses, capitalization,  value  of  shares  and  the  like  must  in  most 
states  be  embodied  in  the  charter.  It  is  best  to  embody  all 
of  the  desired  special  features  of  the  incorporation  in  the 
charter  that  may  be  inserted  there  under  the  laws  of  the  par- 
ticular state.  Any  classification  of  the  stock  should  be  made 
a  charter  provision  wherever  possible.  In  some  states  this 


154  PARTNERSHIP   RELATIONS. 

can  not  be  done,  in  which  case  it  can  usually  be  attained  by 
by-law  provision.1 

The  number  and  often  the  names  of  the  first  board  are 
usually  made  a  part  of  the  charter.  In  some  states  as  in  New 
York  and  New  Jersey  the  qualifications  of  the  directors  may 
be  fixed  by  charter  provision.  In  many  states  any  provision 
for  cumulative  voting  must  be  made  a  part  of  the  charter,  and 
in  general,  if  the  minority  is  to  have  any  special  protection  or 
any  provision  is  to  be  made  for  equality  of  representation  as 
between  the  partners,  it  must  usually  be  done  in  the  charter. 
Here  is  where  the  aid  of  a  skilful  lawyer  is  most  valuable. 

§  in.     By-Law  Provisions. 

The  by-laws  are  the  working  rules  of  the  corporation. 
Any  important  feature  not  provided  for  in  the  charter  and  all 
the  routine  details  of  procedure  must  appear  in  the  by-laws. 

This  will  include  the  date  of  the  annual  meeting,  which 
should  be  put  at  such  time  as  will  best  begin  the  business  year, 
and  the  times  for  the  directors'  meetings,  which  should  like- 
wise be  put  at  such  time  and  at  such  intervals  as  will  best 
serve  the  interest  of  the  business. 

The  by-laws  will  also  usually  prescribe  the  powers  and 
duties  of  the  officers.  This  feature  requires  the  most  careful 
attention.  The  rights  and  duties  of  each  should  be  clearly 
defined  with  some  consideration  of  the  capacities  and  abilities 
of  the  proposed  incumbents.  If  any  limitations  on  salaries  are 
intended,  they  may  be  added  to  the  respective  by-laws  which 
prescribe  the  powers  and  duties  of  each  officer. 

The  powers  of  the  directors  may  be  restrained  by  suit- 
able by-laws,  as,  for  instance,  that  they  shall  not  pay  salaries 
or  contract  obligations  beyond  a  certain  amount,  or  such  limi- 
tations might  be  imposed  with  the  provision  that  they  shall 

1  Kent   v.    Quicksilver    Co.,    78    N.    Y.    150    (1879). 


PROCEDURE    FOR    INCORPORATION. 


155 


not  be  exceeded  unless  the  directors  are  authorized  thereto  by 
a  majority,  or  two-thirds  vote  of  all  the  stock. 

The  by-laws  may  also  regulate  the  paying  of  dividends 
and  the  reservation  of  working  capital.  The  bank  or  trust 
company  to  have  the  accounts  of  the  corporation  may  be 
named  in  the  by-laws  or  they  may  provide  that  the  directors 
shall  designate  a  depositary. 

Any  other  provision  suitable  to  the  particular  circum- 
stances of  the  business  may  be  inserted.  If  preferred  or 
special  stock  is  desired  and  the  charter  has  not  authorized  its 
issuance,  it  is  usually  possible  to  attain  this  end  by  proper 
provision  in  the  by-laws. 

§112.     Organization  Meetings. 

After  the  charter  has  been  secured,  it  is  usual  to  hold 
organization  meetings;  first  of  the  stockholders,  and  then  of 
the  directors.  The  meeting  of  the  stockholders  is  for  the 
purpose  of  formally  adopting  the  set  of  by-laws  agreed  upon, 
and  in  those  states  where  directors  have  not  been  named  in 
the  charter,  to  elect  the  first  board  of  directors.  Also  if  it  is 
proposed  to  exchange  the  existing  partnership  business  or 
other  property  for  stock,  it  is  usual  to  bring  the  matter  before 
the  stockholders,  who  approve  the  proposal  and  refer  it  to  the 
subsequent  meeting  of  the  directors  for  action. 

The  meeting  of  the  directors  is  for  the  purpose  of  elect- 
ing the  officers  provided  for  in  the  by-laws,  and  for  authoriz- 
ing such  action  as  may  be  necessary  to  secure  funds  and  begin 
the  business  operations  of  the  new  corporation.  If  a  proposal 
has  been  made  to  exchange  property  for  stock,  the  directors 
must  accept  it  and  authorize  the  issue  of  the  stock.  At  this 
meeting  the  directors  also  usually  designate  a  bank  as  the  cor- 
poration depositary,  authorize  the  lease  of  office  or  ware- 
rooms  and  do  anything  else  that  requires  to  be  done  before 
beginning  business. 


156  PARTNERSHIP   RELATIONS 

The  proceedings  of  both  of  these  first  meetings  are  care- 
fully recorded  in  the  minute  book,  the  charter  and  by-laws  are 
also  entered,  and  this  complete  record,  showing  the  charter, 
the  by-laws  and  the  minutes  of  the  first  meetings,  takes  the 
place  of  the  articles  of  co-partnership  in  a  firm. 

§  113.     Transfer  of  Firm  Property. 

The  transfer  of  the  business  is  accomplished  by  the  pre- 
sentation of  a  written  proposal  from  the  old  firm,  in  which 
all  the  members  join,  offering  to  the  corporation  the  entire 
business,  assets,  trade  name,  and  good-will  of  the  firm  as  a 
going  concern,  in  exchange  for  all  or  a  definite  portion  of  the 
stock  of  the  corporation  to  be  issued  as  directed  in  the  proposal. 
This  proposal  is  presented  to  the  stockholders  at  their  first 
meeting  and  is  by  them  approved  and  referred  to  the  directors 
for  action. 

At  the  directors'  meeting  the  proposal  with  its  endorse- 
ment by  the  stockholders  is  received,  entered  on  the  minutes 
and  accepted.  The  resolution  of  acceptance  usually  directs 
the  officers  of  the  corporation  to  receive  due  assignment  of  the 
property  and  to  issue  the  stock  to  those  entitled  to  it.  After 
the  passage  of  this  resolution,  a  formal  assignment  of  the 
business  and  assets  is  usually  executed  and  delivered  to  the 
officers  of  the  corporation,  although  the  acceptance  of  the 
written  proposal  followed  by  the  taking  possession  and  issu- 
ance of  stock  in  exchange  would  pass  the  title.2 

§  114.     Issuance  of  Stock  Certificates. 

The  issuance  of  certificates  of  stock  is  not  necessary  to 
give  the  former  partners  all  the  rights  of  stockholders.  The 
acceptance  of  the  partnership  business  and  property  under  the 
written  proposal  entitles  the  members  of  the  partnership  to 
the  stock  specified  and  to  all  the  privileges  of  stockholders.3 

2  Central  Ohio  Co.  v.  Capital  City  Dairy  Co.,  60  O.  St.  96  (1899);  64  L.  R.  A. 
395- 

8  i   Cook  on  Corp.,   §    192. 


PROCEDURE    FOR    INCORPORATION.  157 

The  stock  certificates  are,  however,  the  convenient  and 
usual  evidence  of  stock  ownership  and  as  soon  as  the  officers 
are  elected,  the  seal  adopted  and  certificates  of  stock  printed, 
it  is  usual  to  make  out  certificates  for  the  number  of  shares 
belonging  to  each  partner.  Each  partner  has  then  in  lieu  of 
his  former  interest  in  the  partnership,  a  certificate  for  a  pro- 
portionate amount  of  stock  in  the  new  corporation.  The  part- 
nership is  virtually  dissolved  by  the  transfer  of  all  its  property 
to  the  corporation.  It  is  well,  however,  to  formally  dissolve 
it  and  to  notify  those  who  have  dealt  with  the  firm  that  the 
corporation  has  succeeded  to  its  business.4 

If  the  incorporation  has  been  duly  carried  through,  and 
if  due  notification  has  been  made  of  the  dissolution  and  incor- 
poration of  the  business,  no  further  partnership  liability  can 
be  incurred.5 

§  115.     Conduct  of  Business. 

Thereafter  the  business  will  be  conducted  by  the  corpora- 
tion, which  usually  takes  it  over  as  a  going  concern,  assuming 
all  outstanding  debts  not  otherwise  provided  for.  The  former 
patrons  and  all  who  have  dealt  with  the  firm  are  notified  of 
the  change,  the  letter  heading  is  changed,  the  corporate  signa- 
ture is  used  and  the  bank  accounts  are  transferred  to  the  new 
name. 

"Close"  corporations  with  but  few  stockholders  and  those 
all  actively  engaged  in  the  business,  are  very  frequently  con- 
ducted with  as  little  formality  as  is  the  partnership.  Regular 
meetings  are  omitted  at  convenience  and  most  matters  are 
settled  by  informal  conference  as  before.  There  is  no  objection 
to  this  lack  of  formality  in  a  close  corporation  as  long  as  the 

*2  Bates  on  P.,  §  589;  Goddard  v.  Pratt,  16  Pick.  412  (1835);  Shorb  v. 
Beaudry,  56  Cal.  446  (1880). 

8  i  Bates  on  P.,  §  8;  i  Cook  on  Corp.,  §§  232  to  240;  Whitney  v.  Wyman, 
101  U.  S.  392  (1879);  Bank  v.  Smith,  26  W.  Va.  541  (1885);  Garnett  v.  Richard- 
son, 35  Ark.  144  (1879). 


158  PARTNERSHIP    RELATIONS. 


company  affairs  move  smoothly.  The  corporate  mechanism  is 
there  ready  for  use  when  required,  but  need  not  be  employed 
except  in  routine  matters  until  called  for  by  disagreement, 
death,  insolvency  or  other  emergency. 


PART  VI.— FORMS  AND  PRECEDENTS. 


CHAPTER  XXL 
ARTICLES  OF  COPARTNERSHIP. 


(USUAL   CLAUSES.) 

The  first  five  chapters  of  Part  VI  treat  of  the  partner- 
ship agreement.  The  present  chapter  gives  forms  for  the 
usual  clauses  found  in  almost  every  agreement  of  partnership. 
Chapter  XXII  gives  clauses  relating  to  the  conduct  of  the  part- 
nership business,  one  or  more  of  which  will  usually  be  neces- 
sary in  addition  to  the  clauses  of  the  present  chapter.  Chapter 
XXIII  relates  particularly  to  dissolution.  Chapter  XXIV 
contains  the  less  usual  clauses  which  are  occasionally  employed, 
while  in  Chapter  XXV  complete  partnership  agreements  are 
presented  composed  of  forms  similar  to  those  contained  in 
the  preceding  chapters. 

The  different  forms  of  preamble  that  follow  are  of  equal 
authority  and  all  are  freely  employed  in  practice. 

Form  i.     Preamble — Date — Parties. 


(a)  ARTICLES  OF  COPARTNERSHIP. 


THIS  AGREEMENT  OF  PARTNERSHIP  made  and  entered  into 
this  tenth  day  of  July,  1905,  by  and  between  Roy  C.  Vardon,  J.  Otis  War- 
ren and  Harry  C.  Ay  res,  all  of  the  City  and  State  of  New  York, 

159 


l6o  PARTNERSHIP   RELATIONS. 

WITNESSETH:     That  the   said   parties   hereby  agree   to   becorm 
partners  upon  the  terms  and  conditions  hereinafter  set  forth; 

(b)  PARTNERSHIP  AGREEMENT. 


THESE  ARTICLES  OF  COPARTNERSHIP  entered  into  on  this 
I5th  day  of  July,  1905,  by  and  between  Herrmann  Oelrichs  of  the  City  of 
Newark,  New  Jersey,  and  Charles  W.  Moore  of  the  City  and  State  of  New 
York; 

WITNESS:  That  the  said  parties  hereby  form  a  business  part- 
nership on  the  terms  and  conditions  following: 

(c)  MEMORANDA  OF  PARTNERSHIP  AGREEMENT. 


BE  IT  REMEMBERED  that  Morton  Granger,  of  Jersey  City,  New 
Jersey,  and  Andrew  'McCutcheon,  of  the  City  of  New  York,  hereby  enter 
into  partnership  for  the  practice  of  law  under  the  firm  name  of  Granger 
&  McCutcheon,  on  the  terms  arid  conditions  which  follow: 


Form  2.     Firm  Name. 

(a)  The  firm  name  of  said  copartnership  shall  be  R.   C.  Vardon 
&  Co. 

(b)  The   said   copartnership   shall   be   carried   on   under   the   firm 
name  of 

"OELRICHS  &  MOORE." 

(c)  Said   business    shall   be   carried   on    under   the   firm   name    of 
Montgomery  Brothers. 

(d)  Said  business   shall   be  carried  on   under  the  trade  name  of 
"The  Empire  Publishing  Company." 

(See  §§  27,  41,  93  and  109  on  general  subject  of  the  firm 
name. ) 

Form  3.     Place. 


(a)  The  offices  of  said  firm  shall  be  situated  in  the  City  of  New 
York,  Borough  of  Manhattan. 

(b)  The  business  and  operations   of  the  said  copartnership   shall 
be  conducted  in  the  premises,  Nos.  161-163  Elm  St.,  New  York  City,  and 
in  such  other  places  as  the  partners  may  from  time  to  time  determine. 


ARTICLES   OF   COPARTNERSHIP.  l6l 

Form  4.     Purposes. 


(a)  The   purpose   of   said   copartnership   shall   be   to   conduct  the 
business  of  buying,  selling  and  generally  dealing  in  green  coffees. 

(b)  The  object  of  said  partnership  shall  be  to  engage  generally  in 
the  business  of  publishing,  printing,  advertising,  designing,  engraving  and 
the  allied  arts  and  trades  and  of  buying,  selling  and  generally  dealing  in 
all  goods,  merchandise,  tools,  machines  and  supplies  incidental  or  appur- 
tenant thereto. 

(c)  This   partnership   shall  be   formed  to   carry  on  the  stationery 
and  printing  business   in  the  city  of  Providence,   Rhode   Island,   for  the 
period  of  five  years  from  date. 

(d)  Special  Partnership. 

This  copartnership  is  formed  for  the  purpose  of  buying,  owning  and 
operating  the  ocean-going  steam  tugboat  known  as  the  "Marmaduke,"  and 
for  no  other  purpose. 


Form  5.     Investment. 


(a)  The  capital   of  said   copartnership   shall   be  the   sum   of  eight 
thousand  dollars   ($8,000),  of  which  the  said  Roy  C.  Vardon  shall,  within 
ten  days  from  the  date  hereof,  furnish  five  thousand  dollars  ($5,000),  and 
the  said  J.  Otis  Warren  shall,  within  ten  days  from  the  date  hereof,  furnish 
fifteen  hundred  dollars   ($1,500),  and  the  said  Harry  C.  Ayres  shall,  with- 
in   fifteen    days    from    the    date    hereof,    furnish    fifteen    hundred    dollars 
($1,500).     The  said  Roy  C.  Vardon  shall  be  entitled  to  interest  on  his 
surplus  investment  of  thirty-five  hundred  dollars   ($3,500),  at  the  rate  of 
six  per  cent,  per  annum,  to  be  paid  him  semi-annually  as  other  debts  of 
the  firm  are  paid,  and,  in  event  of  dissolution,  he  shall  be  entitled  to  with- 
draw said  excess  investment  before  anything  is  withdrawn  by  the  other 
partners. 

(b)  The  capital  of  said  copartnership  shall  be  twelve  thousand  dol- 
lars ($12,000).    The  said  Herrmann  Oelrichs  shall  put  into  the  partnership 
as   his   investment   the   printing   plant,   fixtures   and   supplies   now   in   the 
premises    161-163   Elm   St.,   New  York  City,   which  plant  shall  be  taken 
over  by  the  copartnership  as  a  going  concern  at  the  appraised  value  of 
six  thousand  dollars   ($6,000),  and  the  copartnership  shall  assume  a  cer- 
tain chattel  mortgage  on  the  presses  and  type  for  twelve  hundred  dollars 
($1,200)  ;  and  the  said  Charles  W.  Moore  shall,  within  thirty  days  from 
the  date  hereof,   deposit  in  the  Guardian  Trust  Company  of  New  York 
City,  in  the  name  of  the  partnership,  the  sum  of  three  thousand  dollars 
($3,000),  and  within  six  months  from  date  the  further  sum  of  three  thou- 
sand dollars   ($3,000). 


(See  §  2  and  Chap.  IX,  The  Partnership  Property;  also 


l62  PARTNERSHIP   RELATIONS 

Forms  32  and  33  and  clauses  in  Partnership  Articles  in  Chap. 
XXV,  as  to  additional  investments  and  loans  from  partners.) 

Form  6.     Period. 


(a)  This  partnership   shall  continue   for  the  period   of  five  years 
from  the  date  hereof. 

(b)  Unless    sooner    terminated  .by   the   mutual    agreement   of   the 
parties  hereto,  this  agreement  shall  continue  in  force  and  effect  for  the 
period  oi  five  years  from  the  date  hereof. 

(c)  The  partnership  hereby  formed  shall  continue  for  the  period 
of  two  years,  and  unless  then  terminated  shall  continue  for  a  like  period 
thereafter. 

(d)  This  partnership   shall  continue  for  the  period   of  ten  years 
if  the  parties  hereto  shall  so  long  live,  unless  terminated  sooner  by  mutual 
agreement  as  hereinafter  provided. 


If  no  period  is  named  in  the  agreement  the  partnership 
is  at  will,  and  any  partner  may  dissolve  it  at  any  time  with- 
out incurring  liability.  (See  §  72.)  For  this  reason  it  is  not 
strictly  necessary  to  state  in  the  agreement  that  a  partnership 
is  at  will,  when  such  is  intended  to  be  the  fact.  It  is,  how- 
ever, better  to  specify  the  exact  nature  of  the  association  in 
this  respect  in  order  to  prevent  subsequent  misunderstand- 
ing. 

Form  7.     Partnership  at  Will. 


(a)     This  partnership  shall  continue  until  terminated  by  the  death 
or  withdrawal  of  one  of  the  parties,  or  by  the  agreement  of  the  parties. 

(b)  This  partnership  may  be  dissolved  by  either  partner's  giving 
the  other  ninety  (90)   days  notice  of  his  desire  to  terminate  the  partner- 
ship, whereupon,  at  the  expiration1  of  said  ninety  days,  the  partnership 
shall  be  dissolved  as  hereinafter  provided. 

(c)  Either  partner  may  withdraw  at  will,  but  the  partner  with- 
drawing shall  not  withdraw  his  investment  or  any  part  thereof  for  six 
months   after   such   withdrawal,   but   shall   be   entitled   to   interest   on   the 
amount  so  left  in  the  business  at  the  rate  of  six  per  cent,  per  annum 
until  paid  out. 

(d)  Any  partner  may  withdraw  from  this  partnership  at  will,  but 
the  remaining  partners  shall  have  the  right  in  such  case  to  purchase  his 


ARTICLES   OF   COPARTNERSHIP.  163 

interest  for  the  sum  of  six  thousand  ($6,000)  dollars,  three  thousand 
($3,000)  dollars  to  be  paid  by  each,  and  thereafter  to  continue  the  busi- 
ness under  the  present  firm  name  and  style. 

(e)  This  partnership  shall  continue  until  a  member  thereof  shall 
give  his  associates  six  months  notice  of  his  desire  to  terminate  the  same, 
at  the  expiration  of  which  period  the  partnership  shall  be  dissolved  and 
an  accounting  shall  be  had,  and  each  partner  shall  receive  the  amount 
due  him. 


(See  §§  12,  24,  27;  also  Forms  23  and  29.) 

The  first  clause  in  Form  7  is  of  no  legal  effect  save  as 
a  statement  of  a  condition  that  still  exists  if  the  clause  is 
omitted.  The  remaining  clauses  do,  however,  to  some  extent 
modify  the  power  of  dissolution  at  will,  requiring  notice  be- 
fore any  partner  may  withdraw  and  preventing  the  abrupt 
termination  of  the  partnership  relations  otherwise  possible. 

Form  8.     Division  of  Profits  and  Losses. 


(a)  Books  of  account  shall  be  kept  and  at  the  end  of  each  calendar 
year  an  inventory  shall  be  taken,  and  the  books  shall  be  balanced  and  a 
statement    shall   be   made   showing   the   net   profits    for   the   year.      Such 
profits  shall  be  divided  equally,  share  and  share  alike,  between  the  two 
partners,  and  the  account  of  each  shall  be  credited  with  one-half  of  the 
amount  of  profits  so  shown. 

(b)  Books  of  account  shall  be  kept  and  at  the  end  of  each  calendar 
year   an  inventory  shall   be  taken,   the  books   shall   be  balanced,   and   a 
statement  made  showing  the  amount  of  gain  or  loss  for  the  past  year. 
Such  gain  or  loss  so  shown  shall  be  shared  by  the  two  partners  in  the 
following  proportion :    40  per  cent,  of  the  said  gain  or  loss  shall  be  credited 
or  charged  to  the  said  Anderson,  and  60  per  cent,  of  the  said  gain  or  loss 
shall  be  credited  or  charged  to  the  said  Benton. 

(c)  The   said  partners   may   draw   each  month   in  anticipation   of 
profits  the  sum  of  one  hundred  and  fifty  dollars  each,  and  as  soon  after 
the  end  of  the  year  as  possible  a  statement  shall  be  made,  and  the  net 
profits,   if  any,   shall  be   equally   divided  between   the  two  partners   and 
credited  to  their  respective  accounts;  and  if  the  gains  so  credited  shall 
not  equal   the   amounts   withdrawn,   the   said  partners   shall   equally   con- 
tribute to  make  good  the  said  deficit  and  keep  their  investments  up  to 
the  original  amounts. 

(d)  The  said  Andrews  may  draw  out  each  month  in  anticipation 
of  profits  the  sum  of  two  hundred  dollars,  and  the  said  Bell  may  each 
month  draw  out  the  sum  of  one  hundred  dollars,  which  amounts  as  drawn 
shall  be  debited  to  their  respective  accounts.     At  the  expiration  of  each 
year,  or  as  soon  thereafter  as   it  may  conveniently  be  done,  the  books 


164  PARTNERSHIP  RELATIONS. 

shall  be  balanced  and  the  gains  ascertained.  Then,  if  such  gains  exceed 
the  amount  so  withdrawn,  the  sum  of  twenty-four  hundred  dollars  shall 
be  credited  to  Andrews'  account,  and  the  sum  of  twelve  hundred  dollars 
shall  be  credited  to  Bell's  account.  The  remainder  shall  be  passed  to  a 
surplus  account,  which  may  be  drawn  upon  if,  in  any  year,  the  profits 
fall  below  the  amount  withdrawn.  When  the  partnership  is  terminated, 
or  at  any  agreed  time,  any  surplus  remaining  in  said  account  shall  be  di- 
vided as  profits  in  the  proportion  of  two-thirds  to  Andrews  and  one-third 
to  Bell. 


(See  §§  19  and  20  on  subject  of  partnership  books  and 
accounts. ) 

Form  9.     Salaries. 


(a)  The  said  partners  shall  devote  their  entire  time  and  attention 
to  the  said  business   and  neither   shall   engage   in   any  other  business  or 
undertaking  during  the  continuation  of  this  partnership,  and  each  partner 
shall  draw  for  living  expenses  the  sum  of  two  hundred  dollars  per  month, 
to  be  charged  as  part  of  the  expenses  of  the  business. 

(b)  The  said  Rathbone  shall  devote  his  entire  time  to  the  inter- 
ests of  the  partnership,  and  shall  be  entitled  to  draw  at  the  end  of  each 
month  a  salary  of  one  hundred  and  fifty  dollars,  which  shall  not  be  de- 
ducted from  nor  be  included  in  his  share  of  the  profits  of  the  business; 
and  the  said  Collins  shall  only  be  required  to  give  such  time  to  the  busi- 
ness as  he  can  spare  from  his  other  interests,  and  shall  receive  no  salary. 


Form  10.     Payment  of  Private  Debts. 


(a)  Each  partner  shall  pay  his  private  debts,  and  shall  not,  while 
a  member  of  the  firm,  do  anything  or  engage  in  any  undertaking  that  will 
tend  to  impair  his  credit  and  solvency. 

(b)  During  the  continuance  of  this  partnership  each  member  shall 
promptly  pay  and  discharge  his  individual  debts  and  obligations,  and  in 
all  ways  keep  good  his  credit  and  repute. 


Form  ii.     Engaging  in  Other  Businesses. 


(a)  During  the  continuance  of  this  partnership  no  partner  shall 
engage  in  any  business  or  in  any  other  enterprise  that  shall  compete  with 
or  interfere  in  any  way  with  the  business  of  the  firm. 


ARTICLES   OF   COPARTNERSHIP.  l6$ 

(b)  During  the  period  for  which  this  partnership  is  to  continue 
no  member  of  the  partnership  shall  engage  in  any  similar  business,  or 
any  business  which  competes  with  or  interferes  with  the  business  of  this 
partnership,  and  if  any  partner  shall  retire  before  the  expiration  of  the 
term,  he  shall  not  thereby  be  released  from  the  obligation  imposed  in  this 
paragraph. 


(See  also  Form  13.) 
Form  12.     Termination. 


(a)  That  at  the  termination  from  any  cause  of  this  partnership, 
an  account  shall  be  taken,  the  debts  of  the  partnership  discharged,  and 
the   remainder   of   the   assets    shall    be   set   aside   and    divided    in   specie 
equally,  share  and  share  alike,  between  the  partners  or  the  representatives 
of  either. 

(b)  That  after  the  expiration  of  two  years,  if  it  shall  appear  to 
be  for  the  interest  of  the  copartners  to  continue  this  business,  the  same 
shall  be  incorporated  and  a  company  shall  be  organized  under  the  laws 
of  the  State  of  Ohio  to  take  over  the  said  business,  and  the  entire  busi- 
ness and  assets  of  the  partnership  shall  be  assigned  to  the  corporation, 
and  each  partner  shall  receive  stock  in  said  corporation  proportionate  to 
his  interest  in  the  partnership. 

(c)  Upon   the   dissolution    from    any   cause   of   this   partnership,    a       / 
full  and  general  account  of  the  business  shall  be  taken,  and  unless  one  or 
more   of   the   partners    shall   by   agreement   purchase   the   interest   of   the 
others,  the  assets  and  property  thereof  shall  be  sold,  the  liabilities  of  the 
partnership   discharged,   and   after  the   investments   of  each  partner   have 
been  repaid,  the  surplus,  if  any,  shall  be  divided  among  the  partners  or 
their  representatives  as  profits.     But,  if  there  shall  not  be  sufficient  capital 
remaining  to   repay  the   original   investments,   then   such   capital  still   re- 
maining shall  be  divided  among  the  partners  in  proportion  to  their  re- 
spective original  investments. 


(See  Chap.  XXIII,  Clauses  Relating  to  Dissolution.) 


CHAPTER  XXII. 
ARTICLES  OF  COPARTNERSHIP. 

(CLAUSES  RELATING  TO  CONDUCT  OF  BUSINESS.) 

Form  13.     Time  of  Partners. 


(a)  Neither  partner  shall  during  the  continuance  of  this  partner- 
ship be  concerned  in  any  other  business  unless  with  the  written  consent 
of  the  other  party  hereto. 

(b)  It  is  understood  and  agreed  that  each  partner  shall  devote  his 
whole  time  to  the  business  of  this  partnership,  and  shall,  during  its  con- 
tinuance, engage  in  no  other  business,  nor  accept  any  office  or  trust  that 
may  interfere  with  his  attendance  at  its  place  of  business. 

(c)  The  said  Marvin  shall  give  his  entire  time  and  attention  to 
the  said  business,  and  shall  engage  in  no  other  business,  undertaking  or 
speculation  during  its  continuance. 

(d)  The  said  Wilson  shall  give  to  the  said  business  such  time  and 
attention  as  may  be  necessary,  but  shall  be  at  liberty  to  continue  his  pres- 
ent business  of  Fire  and  Marine  Insurance  and  to  give  it  proper  attention. 


(See  §  52;  also  Form  n.) 
Form  14.     Dormant  and  Silent  Partners. 


(a)  And  it  is  agreed  between  the  parties  hereto  that  the  said  Bowen 
shall  take  no  part  in  the  management  of  the  business,  and  that  he  shall 
not  be  held  out  as  a  partner,  nor  shall  his  connection  with  the  said  co- 
partnership be  known  or  announced. 

(b)  It  is   further  agreed  that  the  said   Andrews   shall   allow  the 
use  of  his  name  in  the  firm  style  and  shall  be  entitled  to  share  in  the 
profits  and  shall  be  responsible  for  any  losses  incurred  in  the  conduct  of 
the  firm  -business,  but  he  shall  take  no  part  in  the  management  thereof, 
and  shall  riot  interfere  in  the  conduct  of  the  firm  business. 


(See  §  37.) 

166 


ARTICLES   OF   COPARTNERSHIP.  167 

Form  15.     Managing  Partner. 


(a)  It  is  understood  and  agreed  that  the  said  Morton  shall  have 
the  entire  control  and  management  of  the  partnership  business,  shall  re- 
ceive, deposit  and  check  out  all  moneys  of  the  firm,  shall  purchase  such 
goods,   supplies   and  materials   as  may  be  needed,   shall   employ  and   dis- 
charge such  labor  and  clerical  assistance  as  may  be  necessary,  and  shall 
do  and  direct  all  other  things  pertaining  to  the  business  of  the  firm  with- 
out hindrance  or  interference  from  the  other  members  of  the  firm. 

(b)  In  the  conduct  of  the  firm  business  the  said  Randall  Colyer 
shall  be  managing  partner,  shall  have  sole  charge  of  the  moneys,  securities, 
goods  and  property  of  the  firm,  and  shall  make  a  statement  of  his  receipts 
and  expenditures  to  his  partners  at  the  end  of  each  month. 


A  managing  partner  is  held  to  the  strictest  good  faith  in 
the  discharge  of  his  partnership  duties.  Kimberly  v.  Arms, 
129  U.  S.  512  (1888). 

Form  16.     Signature  to  Commercial  Paper,  Etc. 


(a)  No  note,  bill,  draft,  check  or  other  obligation  of  the  firm  in 
excess  of  fifty  dollars  shall  be  signed  or  endorsed  or  accepted  by  either 
partner  without  consultation  with  and  consent  of  the  other  partner  thereto. 

(b)  Neither  partner  alone  shall  bind  the  firm  to  any  contract  or 
obligation  involving  a  liability  in  excess  of  five  hundred  dollars,  but  every 
such  contract  or  obligation  shall  require  the  signature  of  the  firm  name 
executed  by  both  partners. 


Form  17.     Restrictions  on  Partners'  Powers. 


Against  Endorsement. 

(a)  During   the    continuance    of    this    partnership    neither    partner 
shall  become  surety  or  endorser  or  otherwise  make  himself  liable  for  the 
debt,  default  or  miscarriage  of  another. 

(b)  During  the  continuance  of  this  partnership,  no  partner  shall 
sign,  endorse  or  guarantee  the  payment  of  any  commercial  paper  or  other 
instrument,  or  make  himself  responsible  for  the  debt,  default  or  miscar- 
riage of  any  other  person,   firm  or  corporation,   unless   with  the  written 
consent  of  the  other  parties  hereto. 

Against  Speculation. 

(c)  Neither  partner  shall  engage,  outside  of  the  firm  business,  in 
any  venture,  speculation  or  business  operation  of  any  kind  involving  pos- 
sible gain  or  loss. 


l68  PARTNERSHIP  RELATIONS. 

(d)  During  the  continuance  of  this  partnership,  neither  partner 
shall,  either  for  himself  or  for  the  firm,  engage  in  any  sale,  purchase  or 
other  operation,  either  directly  or  indirectly,  in  or  concerning  stock, 
bonds,  securities  or  commodities  other  than  those  pertaining  to  the  firm 
business  herein  set  forth. 


As  has  been  stated  (§  49),  stipulations  such  as  contained 
in  Forms  16  and  17  when  included  in  the  partnership  articles 
have  no  effect  as  to  third  persons  unless  brought  to  their  notice. 
A  partner  violating  any  such  stipulation  would  be  liable  to  his 
partners  for  his  breach  of  contract,  but  his  act  as  to  an  inno- 
cent third  person  would  be  binding  on  the  firm. 

Form  18.     Majority  Rule. 


(a)  No  change  from  the  usual  routine  of  business  or  new  venture 
or  other  action  involving  a  possible  liability  by  the  firm  shall  be  made 
or  undertaken  unless  first  discussed  by  all  the  members  of  the  firm  and 
authorized  by  a  majority  of  said  members. 

(b)  After  due  consultation  between  all  the  members  of  the  firm, 
the  decision  of  the  majority  shall  prevail  and  without  such  consultation 
and  authorization  no  partner  shall  take  any  action  that  may  involve  the 
firm  in  a  liability  exceeding  five  hundred  dollars. 


(See  §  47-) 
Form  19.     Books  to  Be  Kept, 


(a)  A  full  and  correct  record  of  the  firm  business  shall  be  kept 
and  each  partner  shall  at  all  times  have  access  to  the  books  and  records 
of  the  firm. 

(b)  The  accounts  of  the  firm  shall  be  kept  by  double  entry  book- 
keeping and  shall  be  balanced  at  the  end  of  each  month,  and  the  books 
and  records  shall  at  all  times  be  kept  in  the  office  of  the  firm  and  shall 
be  open  to  the  inspection  of  the  partners.     Each  partner  shall  furnish  the 
bookkeeper  with  a  full   record  of  all  his  transactions   on  behalf  of  the 
firm. 


(See  §§  19,  20.) 


ARTICLES   OF    COPARTNERSHIP.  169 

Form  20.     Periodical  Accounting. 


(a)  An  accounting  shall  be  had  at  the  close  of  each  month,  and 
the  profits  or  losses  shown  shall  be  apportioned  and  paid  to  each  part- 
ner as  herein  elsewhere  provided. 

(b)  At  or  as  near  as  may  be  to  the  first  day  of  January  in  each 
year  an  inventory  shall  be  taken,  the  books  shall  be  closed,  and  a  balance 
sheet  prepared,  showing  the  assets  and  liabilities,  and  the  losses  and  gains 
for  the  preceding  year.     Any  gain  shown  shall  be  apportioned  as  herein 
elsewhere  directed,  and  shall  be  credited  to  the  accounts  of  the  partners 
entitled  thereto. 

(c)  On  or  about  the  3Oth  day  of  June  and  the  3ist  day  of  Decem- 
ber in  each  year,  an  inventory  shall  be  taken,  10  per  cent,  discount  being 
allowed  for  depreciation  of  plant  and  stock  and  material   on  hand,  and 
such  amount  being  deducted  from  bills  and  accounts  payable  as  shall  be 
agreed  upon  by  all  the  partners.     Then  the  books  shall  be  closed  and  a 
balance  sheet  prepared.     After  deducting  all  rents,  salaries,   wages,  com- 
missions  and   expenses   of  conducting  the  business,   including  salaries   as 
elsewhere  provided  herein  for  the  partners,  the  net  surplus  profits  shall 
be  equally  divided  among  the  partners,  and  a  copy  of  the  balance  sheet, 
showing  such  closing  and  apportionment  shall  be  given  to  each  partner 
who  shall  be  concluded  thereby,  unless  he  makes  written  objection  thereto 
within  thirty  days  after  the  receipt  thereof. 


Form  21.     Financial  Management. 


(a)  All  moneys   of  the  firm  shall  be  deposited  in  some  national 
bank  of  New  York  City  subject  to  withdrawal  only  by  the  check  of  the 
firm  signed  by  Melville  P.  -Stevens,   who  shall  have  sole  charge  of  the 
finances  and   accounts  of  the   firm   and  who  alone  is   authorized  to   sign 
and  endorse  commercial  paper  on  behalf  of  and  for  the  firm.     A  copy  of 
this    article   shall   be   given   to   the   bank   upon   opening   such   account   as 
notice  of  the  stipulation. 

(b)  The  said  Warren  shall  have  sole  authority  to  issue,  sign  and 
endorse  commercial  instruments  and  paper  on  behalf  of  and  for  the  firm; 
he  shall  have  sole  charge  of  the  finances  and  accounts  of  the  firm  and 
shall  deposit  all  moneys  of  the  firm  in  some  bank  or  trust  company  in 
New  York  City  in  the  firm  name,  subject  to  withdrawal  by  check  signed 
in  the  firm  name  by  the   said   Warren,   and  a  copy   of  this   section  of 
the  articles  of  copartnership  endorsed  by  the  firm  shall  be  given  to  said 
bank  or  trust  company. 


Form  22.     Employees. 

(a)  No  clerk  or  other  employee  shall  be  engaged  or  discharged 
save  by  the  agreement  of  both  partners,  and  no  salary  or  wages  paid  to 
any  employee  shall  be  increased  save  by  the  agreement  of  both  partners. 


170 


PARTNERSHIP  RELATIONS. 


(b)  No  person  shall  be  employed  in  the  firm  business  by  any  part- 
ner without  consultation  with  and  agreement  thereto  of  all  the  members 
of  the  firm  and  no  person  employed  by  the  firm  shall  receive  any  increase 
of  wages  without  the  agreement  of  all  members  of  the  firm,  and  no  em- 
ployee shall  be  discharged  without  the  agreement  of  all  members  of  the 
firm  except  in  case  of  gross  misconduct  or  insolence. 


CHAPTER  XXIII. 
ARTICLES  OF  COPARTNERSHIP. 

(CLAUSES  RELATING  TO  DISSOLUTION.) 

Form  23.     Retirement  of  Partner. 

(a)  This  partnership   shall  continue  for  the  period  of  two  years 
and  thereafter  may  be  terminated  by  any  partner,  provided  he  shall  give 
to  the  other  partners  a  several  written  notice  thereof  not  less  than  six 
months  before  the  same  shall  go  into  effect. 

(b)  After  the  period  hereinbefore  provided   for  the  continuation 
of  this  partnership  has  elapsed,  if  either  partner  shall  desire  to  terminate 
the  same  he  may  do  so  by  giving  not  less  than  three  months'  written 
notice  thereof  to  his  partner. 

(c)  If  either  of  the  partners  hereto  shall  desire  to  terminate  this 
partnership  at  or  after  the  expiration  of  its  prescribed  period,  he  may  do 
so,  by  giving  to  his  associates  written  notice  of  such  desire,  two  calendar 
months  previous  to  such  termination. 

(d)  This  partnership  shall  continue  till  the  first  day  of  January, 
1908,  after  which  any  partner  may  retire  on  giving  three  months'  prior 
notice  to  the  other  partners,  and  at  the  expiration  of  the  date  of  notice 
the  partnership  shall  be  terminated  and  its  affairs  wound  up,  unless  the 
other  partners  elect  to  buy  out  the  interest  of  the  partner  giving  notice 
for  the  sum  of  ten  thousand  dollars  and  all  undivided  profits  to  which 
said  partner  may  be  entitled  at  the  time. 

(See  Forms  7  and  29.) 
Form  24.     Option  on  Partner's  Interest. 


(a)  The  said  Buell  shall  have  the  option,  at  any  time  before  the 
expiration  of  this  agreement,  to  buy  the  share  of  the  said  Armitage  for 
the  amount  of  his  investment,  and  five  thousand  dollars   ($5,000),  bonus 
for  goodwill,  etc.     In  such  event  the  said  Armitage  shall  be  entitled  to 
his  share  of  the  profits  up  to  the  date  of  full  payment  of  both  his  invest- 
ment and  the  bonus. 

(b)  If  during  the  continuance  of  this  partnership  or  at  its  close 
either  partner  should  desire  to  retire,  the  other  partners  shall  have  the 
option  to  purchase  his   interest   at  the  valuation  thereof  shown  by  the 

171 


172  PARTNERSHIP   RELATIONS. 

last  inventory  and  settlement,  with  an  amount  equal  to  the  current  year's 
net  profits  added  thereto  for  the  goodwill.  Said  valuation  shall  be  paid 
one-half  in  cash,  and  the  remainder,  together  with  the  amount  paid  for 
the  goodwill,  in  monthly  installments  of  not  less  than  one  hundred  dol- 
lars each. 

Form  25.     Power  of  Expulsion. 


It  is  understood  and  agreed  by  all  the  parties  hereto  that  any  mem- 
ber of  the  company  may  be  expelled  by  the  unanimous  vote  of  the  othe£ 
members,  in  which  event  the  member  so  expelled  shall  be  entitled  to  have 
his  investment  repaid  within  sixty  days  from  the  date  of  such  expulsion, 
and  to  receive  his  due  proportion  of  the  dividends  for  the  period  of  six 
months  next  succeeding. 


Form  26.     Insolvency  of  Partner. 


(a)  If  any  partner  shall  become  insolvent,  or  shall  be  adjudicated 
a  bankrupt,  or  shall  make  an  assignment  to  or  for  the  benefit  of  his 
creditors,  the  other  partners  may  notify  him  that  the  partnership  is  dis- 
solved, may  advertise  such  dissolution,  and  may  thereafter  conduct  the 
business  on  their  own  behalf  free  from  all  claim  from  such  insolvent  part- 
ner for  goodwill  or  the  trade  name,  by  paying  him  or  his  trustee  or  as- 
signee the  value  of  his  interest  in  the  partnership,  as  shown  by  the  last 
annual  account. 


Form  27.     Losses. 


(a)  If  at  the  close  of  any  year  it  shall  be  shown  that  the  business 
has  made  no  profits,  the  partnership  may  be  terminated  by  ten  (10)  days' 
notice  from  either  partner. 

(b)  If  at  any  time  losses  shall  be  incurred  aggregating  one-half 
of  the  capital   invested,   either   partner   may,    at   his   option,    require   the 
partnership  to  be  dissolved,  as  herein  elsewhere  provided. 

(c)  If  at  any  time  losses  shall  be  incurred  whereby  the  original 
investments  of  the  partners  shall  be  impaired,  each  partner  shall  within 
thirty  days  after  notice  of  such  impairment  make  good  his  proportion  of 
such  deficiency,  or,  in  default  thereof,  shall  be  charged  ten  (10)  per  cent, 
per  annum  on  the  amount  due,  until  paid. 


Form  28.     Death  of  Partner. 


(i)     Continuation  of  Investment. 

(a)     Should  either  partner  die  before  the  expiration  of  the  period 
of  this  partnership,  it  is  expressly  understood  and  agreed  that  his  invest- 


ARTICLES   OF   COPARTNERSHIP. 


173 


ment  and  interest  in  the  profits  shall  not  be  withdrawn  for  one  year  there- 
after, but  that  the  surviving  partner  shall  continue  the  business,  and  the 
amount  ascertained  to  be  due  such  deceased  partner  at  the  time  of  his 
death  shall  be  treated  as  a  loan,  and  ehall  draw  interest  therefrom  at  the 
rate  of  six  per  cent,  until  paid  in  full. 

(b)  In  the  event  of  the  death  of  any  partner,  the  partnership  be- 
tween the  surviving  partners  shall  not  be  terminated,  but  they  may  con- 
tinue the  business  under  the  present  firm  name,  and  the  interest  of  the 
deceased  partner  in  the  business,  including  the  good-will  and  firm  name, 
shall  be  valued  by  appraisers  appointed  by  the  personal  representatives  of 
the  deceased  partner  and  by  the  surviving  partners,  and  the  amount  so 
ascertained  shall  be  due  and  payable  to  the  estate  of  the  deceased  partner 
in  twenty  monthly  payments,   with   interest  at  six  per  cent,  per  annum 
until  paid. 

(c)  "Should  either  partner  die  during  the  term  of  said  copartner- 
ship, the  firm  shall  not  be  deemed  dissolved  thereupon,  but  the  wife  and 
children  of  the  decedent  shall  immediately  succeed  to  his  interest  in  the 
business  which  thenceforward  shall  be  prosecuted  for  the  remainder  of 
the  term  for  the  benefit  of  them  and  the  surviving  partner.     Either  part- 
ner may  designate  by  will  what  interest  his  wife  and  children,  as  between 
themselves,  shall  have  in  his  said  copartnership  interest  in  the  event  of 
his  death  as  aforesaid."     (Stewart  v.  Robinson,  115  N.  Y.  328  [1889].) 

This  last  clause  was  construed  by  the  New  York  Court 
of  Appeals  not  to  make  the  estate  liable  as  a  .partner,  that  only 
the  fund  already  in  the  business  was  subject  to  the  hazards 
of  the  business,  and  that  the  estate  of  the  decedent  partner 
could  not  be  held  for  anything  further  even  though  the  busi- 
ness became  insolvent. 


(2)     Life  Insurance. 

(a)  It  is  understood  and  agreed  that  there  shall  be  taken  out 
policies  of  life  insurance  to  the  amount  of  twenty-five  thousand  dollars 
in  favor  of  the  executors  of  each  of  said  partners,  and  the  premiums 
thereon  shall  be  assumed  and  paid  by  the  firm  as  a  charge  on  the  firm 
profits  and  assets,  and  in  the  event  of  the  death  of  either  partner  the 
receipt  of  such  life  insurance  by  his  personal  representatives  shall  be  a 
full  payment  for  all  interests  of  the  deceased  partner  in  the  firm  or  firm 
assets,  and  the  same  shall  belong,  free  of  all  claims  from  his  estate,  to 
the  surviving  partners. 

This  plan  is  capable  of  many  variations.  It  is  for  the 
benefit  of  the  surviving  partners  rather  than  for  the  deceased 
partner's  family.  The  estate  gets  an  insurance  paid  out  of 
profits  that  should  have  come  to  it,  and  loses  whatever  the 
interest  in  the  business  is  worth. 


174  PARTNERSHIP   RELATIONS. 

(3)  Option  to  Survivors. 

(a)  In  the  event  of  the  death  of  any  partner,  the  surviving  part- 
ners may  become  the  owners  of  the  said  business  and  may  continue  it  un- 
der the  firm  name  by  paying  to  the  estate  of  the  deceased,  in  twelve  equal 
monthly   payments,   the   sum   of   fifteen   thousand   dollars    ($15,000),    said 
amount  being  the  agreed  liquidated  valuation  of  the  interest  of  such  de- 
ceased partner  in  the  firm  property,  including  the  firm  name  and  good- 
will. 

(b)  In  event  of  the  death  of  one  partner,  the  surviving  partner  shall 
be  at  liberty  to  purchase  and  take  all  the  partnership  assets,  property  and 
business,  including  the  firm  name  and  goodwill,  upon  the  payment  to  the 
legal  representatives  of  such  deceased  partner  of  the  just  and  full  amount 
of  his  share  thereof,  or  interest  therein,  as  fixed  and  determined  by  the 
last  annual  inventory  and  account. 

The  surviving  partner  must,  however,  within  three  months  after  the 
death  of  the  partner  so  dying,  elect  to  purchase  and  take  such  partnership 
assets,  property  and  business,  as  aforesaid,  and  in  case  of  his  failure  to 
so  elect,  then  the  partnership  affairs  are  to  be  wound  up  and  settled  in 
the  usual  manner  by  the  said  surviving  partner. 

These  last  clauses  are  taken  from  the  articles  construed 
in  Hull  v.  Cartledge,  18  App.  Div.  (N.  Y.)  54  (1897).  See 
also  Harbster's  Appeal,  125  Pa.  St.  i. 

(4)  Allowance  for  Good-will. 

In  the  event  of  the  death  of  any  partner  before  the  expiration  of 
the  term,  the  remaining  partners  shall  have  the  option  of  buying  the  in- 
terest of  the  deceased  partner  at  the  value  shown  by  the  last  annual  bal- 
ance sheet,  with  twenty-five  (25%)  per  cent,  added  in  lieu  of  any  further 
claim  or  interest  in  the  goodwill,  trade  marks  and  firm  name,  and  may 
pay  the  same  in  ten  (10)  semi-annual  payments,  the  first  payment  to  be 
made  within  ninety  days  after  death.  In  consideration  of  such  payment 
for  the  interest  and  goodwill  the  survivors  or  any  one  of  them  shall  have 
the  right  to  the  use  of  the  present  firm  name,  free  from  all  claim  of  the 
estate  of  such  deceased  partner. 

It  is  very  difficult  to  ascertain  the  true  value  of  the  good- 
will of  a  business,  hence  a  provision  for  making  the  price  to 
be  paid  by  a  surviving  partner  definite  may  save  much  trouble. 
For  another  method  of  accomplishing  this  same  end  see  Form 
3o(a). 

Form  29.     Dissolution  by  Notice. 


(a)  Either  partner  hereto  may  have  this  partnership  dissolved  by 
giving  his  copartner  written  notice  of  his  intention  ninety  days  before 
such  dissolution. 


ARTICLES   OF   COPARTNERSHIP.  175 

(b)  This  copartnership  shall   continue  until  terminated  by  death, 
or  by  one  of  the  copartners  giving  written  notice  to  his  associates  of  his 
wish  to  terminate  the  copartnership.     Such  notice  shall  be  given  by  leav- 
ing a  copy  thereof,  addressed  to  each  associate,  at  the  office  of  the  firm. 
Thirty  days  after  such  notices  have  been  given,  the  firm  business  shall 
be  closed,  an  inventory  taken,  the  books  closed  and  each  partner's  ac- 
count charged  or  credited  with  his  proportion  of  the  net  gain  or  loss, 
shown  by  the  books.    The  assets  on  hand  shall  then  be  sold  at  public  sale 
and  the  net  receipts  divided  among  the  copartners  according  to  their  re- 
spective  rights   therein   as   shown   by   the   books   of   the   firm   and   these 
articles. 

(c)  Any  partner   shall   have  power   to   have  the  partnership   dis- 
solved by  giving  written  notice  six  months  in  advance  to  his  copartners. 
In  the  event  of  such  notice  being  given  the  other  partners  shall  have  the 
option  of  purchasing  the  interest  of  such  partner  at  its  value  as  shown 
by  the  last  annual  balance  sheet,  less  any  withdrawals  in  excess  of  profits 
by  such  partner  since  such  balancing  of  accounts,  and  with  no  allowance 
for  goodwill.     If  the  other  partners  do  not  desire  to  exercise  such  option 
the  business  shall  be  wound  up,  and  the  net  proceeds  distributed  as  is 
usual  in  case  of  dissolution. 


(See  also  Forms  7  and  23.) 
Form  30.     Winding  Up  Partnership  Affairs. 

(a)  Firm  Name  and  Good-will. 

In  closing  up  the  partnership  affairs,  if  any  partner  or  partners  shall 
desire  to  continue  the  business  in  the  same  location  or  under  the  firm 
name  or  as  successors  to  the  present  firm,  they  shall  be  charged  in  set- 
tlement a  sum  equal  to  one-half  the  net  profits  for  the  preceding  year  for 
the  goodwill,  and  in  such  event  any  partner  or  partners  retiring  shall  not 
compete,  and  shall  have  no  further  claim  for  the  firm  name  or  goodwill. 

(b)  Taking  Goods  for  Share. 

Upon  winding  up  the  partnership  affairs,  if  the  partnership  is  solvent, 
any  partner  may  take  from  the  partnership  property  in  specie,  at  the  last 
inventory  valuation,  goods  and  assets  not  exceeding  the  amount  of  his 
interest  in  the  firm's  net  worth,  and  any  subsequent  depreciation  or  failure 
to  realize  on  the  remaining  assets  shall  not  affect  the  transaction,  nor  shall 
he  be  held  liable  to  his  associates  for  any  advantage  or  profit  gained 
thereby. 

(c)  Final  Audit  of  Accounts. 

In  closing  the  affairs  of  this  partnership  the  firm  of  Patterson, 
Teale  &  Dennis,  accountants,  or  their  successors,  shall  be  employed  to 
audit  and  finally  close  the  firm  accounts  and  the  results  reported  by  them 
and  the  amounts  by  them  found  due  to  each  of  the  partners  shall  be 
final  and  conclusive  and  binding  upon  all  of  the  parties  hereto  and  upon 
their  personal  representatives. 


CHAPTER  XXIV. 
ARTICLES  OF  COPARTNERSHIP. 

(OCCASIONAL  CLAUSES.) 

Form  31.     Arbitration  Clause. 


(a)  It  is  hereby  covenanted  between  the  said  parties  that  in  the 
event  of  any  disagreement  concerning  the  conduct  of  the  said  partnership 
business,  or  in  winding  up  and  settling  the  affairs  of  the  partnership  upon 
dissolution  thereof,  the  same  shall  be  decided  and  determined  by  three 
arbitrators,   of   whom   each   partner  or   his   personal    representative   shall 
appoint  one,  and  the  two  so  appointed  shall  appoint  the  third.     The  de- 
cision  of  these  arbitrators   shall   be  final   and   binding   upon   the   parties 
hereto. 

(b)  Any  disagreement  arising  among  the  parties  hereto  concern- 
V      ing  the  conduct  of  the  business,  or  its  dissolution  and  winding  up,  shall 

be  referred  to  and  decided  by  two  persons  in  the  trade,  one  to  be  chosen 
by  each  partner,  or,  in  event  of  their  disagreement,  by  a  third  arbitrator 
selected  by  the  first  two,  as  is  usual.  Said  decision  shall  be  made  in 
writing,  and  shall  be  conclusive  on  the  parties  hereto. 


Form  32.     Additional  Investments. 


\  r 

\  (a)     It  is   agreed  between  the  parties   hereto,   that   either  partner 

may  make  additional  investments  from  time  to  time  in  amounts  of  not 
less  than  one  hundred  dollars  and  on  such  additional  investments  shall 
receive  interest  at  the  rate  of  eight  per  cent,  per  annum,  and  such  addi- 
tional investments  shall  not  be  withdrawn  until  the  dissolution  of  the 
firm. 

176 


ARTICLES   OF   COPARTNERSHIP.  177 

Form  33.     Loans  from  Partners. 


(a)  If  either  partner  shall  hereafter  have  additional  funds  which 
he  may  desire  to  use  in  the  business,  he  may  loan  the  same  to  the  firm 
and  such  loans  shall  draw  interest  at  the  rate  of  eight  per  cent,  per  an- 
num, payable  as  are  other  firm  debts,  and  such  loans  shall  not  be  with- 
drawn except  after  sixty  (60)  days  written  notice  to  the  other  partner. 


Form  34.     Premium  for  Admission. 


(a)  The  said  Armstrong  hereby  covenants  and  agrees  to  pay  the 
sum  of  ten  thousand  dollars  ($10,000)  premium  to  the  said  Ehrlich  and 
Baumgartner,  to  each  five  thousand  dollars  ($5,000)  personally,  and  the 
said  Ehrlich  and  Baumgartner  each  agrees  and  binds  himself  to  invest 
the  said  sum  so  received,  in  the  business  as  a  part  of  his  contribution  to 
its  capital. 


Form  35.     Guaranty  of  Profits  to  Partner. 


(a)  The  said  Morris  P.  Norton  hereby  guarantees  that  the  share 
of  profits  of  the  said  Nathan  Atterbury  shall  in  no  year  (during  the  term 
of  the  partnership)  be  less  than  the  sum  of  three  thousand  dollars  ($3,000), 
and  agrees  and  binds  himself  to  make  good  to  said  Atterbury  any  defi- 
ciency in  said  amount,  from  the  share  of  profits  coming  to  the  said  Norton. 

(b)  The   said   Alexander   guarantees   that   the   profits   accruing  to 
the  said  Fraser  during  the  term  of  this  partnership  shall  not  be  less  than 
twenty-four  hundred  dollars    ($2,400)    per  annum,  and  if  at  the  end  of 
any  year  the  amount  of  net  profits  received  by  and  coming  to  the  said 
Fraser  for  the  firm  business   for  the  preceding  twelve  months  shall  be 
less  than  the  said  sum  of  twenty- four  hundred  dollars   ($2,400),  the  said 
Alexander  agrees   and  binds  himself  to  make  good  the  deficiency  from 
his  own  funds. 


Form  36.     Amendment  of  Articles. 

(a)  These  articles  may  be  amended  or  added  to  from  time  to  time 
by  the  consent  of  all  the  partners. 

(b)  These   articles   may   be   altered,    amended   or   added   to   from 
time  to  time  during  the  term  of  the  partnership  by  the  agreement  thereto 
of  two  of  the  three  partners  after  two  weeks  notice  to  the  other  partner 
of  such  intention. 


PARTNERSHIP  RELATIONS 


(c)  It  is  hereby  mutually  agreed  that  if  during  the  term  of  this 
partnership  it  shall  become  necessary  or  convenient  to  alter,  amend  or 
enlarge  the  scope  of  these  articles,  it  may  be  done  by  the  unanimous  agree- 
ment of  the  parties  hereto,  expressed  in  writing  upon,  or  attached  to  these 
articles,  and  such  alteration,  amendment  or  addition  shall  have  the  same 
effect  and  force  as  if  embodied  in  these  original  articles. 


CHAPTER  XXV. 
ARTICLES  OF  COPARTNERSHIP. 

(COMPLETE  FORM.) 

Form  37.     Simple  Articles. 


Edward  T.  Craven  and  Milton  Noble,  both  of  the  City  of  Rochester, 
New  York,  hereby  mutually  agree  to  become  partners  under  the  firm 
name  of  "Craven  &  Noble"  to  conduct  the  trade  and  business  of  sign- 
painting  in  the  said  City  for  the  period  of  two  years  from  date. 

The  said  Craven  invests  his  stock  of  paints,  brushes  and  other 
material,  estimated  to  be  worth  two  hundred  dollars,  and  the  said  Noble 
invests  two  hundred  dollars  in  cash. 

Both  partners  shall  give  their  entire  time  and  shall  share  losses  and 
gains  equally. 

All  amounts  earned  or  received  by  either  partner  for  work,  ma- 
terials or  anything  pertaining  to  the  business,  shall  be  deposited  in  the 
Guardian  Trust  Company  of  Rochester  in  the  name  of  both  partners,  and 
shall  be  checked  out  as  needed  for  expenses  and  supplies,  by  the  signa- 
tures of  both  partners,  and  an  equal  amount  shall  be  drawn  each  Monday 
morning  for  each  partner  for  personal  expenses,  but  a  balance  of  two 
hundred  dollars  shall  always  be  kept  and  held. 

When  the  firm  shall  be  dissolved  the  material  on  hand  shall  be  di- 
vided equally  and  all  debts  shall  be  paid  from  the  money  in  bank,  after 
which  the  balance  shall  be  divided  equally  between  the  partners. 

Witness  our  hands  and  seals  this  I2th  day  of  October,  1905. 

EDWARD   T.    CRAVEN.        [L.  s.] 
MILTON  NOBLE.  [L.  s.]    ' 

Attest, 

MARK  GORHAM. 


An  acknowledgment  is  not  legally  necessary  to  a  partner- 
ship agreement  though  it  is  frequently  appended. 

179 


l8o  PARTNERSHIP   RELATIONS. 

Form  38.     Articles  for  Mercantile  Business. 
ARTICLES  OF  COPARTNERSHIP. 


These  Articles  of  Copartnership  entered  into  on  this  2oth  day  of 
October,  1905,  by  and  between  Edgar  H.  Bedell,  of  the  City  of  New  York, 
and  John  A.  Sutton,  of  the  City  of  Hartford,  Connecticut,  WITNESS : 

1.  The  firm  name  of  said  copartnership  shall  be 

"E.  H.  BEDELL  &  Co." 

2.  The  offices  and  place  of  business  of  said  firm  shall  be  situated 
in  the  .City,  County  and  State  of  New  York. 

3.  The  purpose  of  said  firm  shall  be  to  conduct  the  business   of 
buying  and  selling  chocolate,  cocoa  and  their  products  and  preparations. 

4.  The  capital  of  said  firm  shall  be  the  sum  of  Twelve  Thousand 
Dollars  ($12,000),  of  which  the  said  Edgar  H.  Bedell  shall  invest  the  sum 
of  Four  Thousand  Dollars  '($4,000)    and  the  said  John  A.   Sutton  shall 
invest  the  sum  of  Eight  Thousand   Dollars    ($8,000).      Said   investments 
shall  be  deposited  in  the  Guardian  Trust  Company  of  New  York  City 
on  or  before  the  first  day  of  November,  1905. 

5.  The  said  Bedell  shall  give  his  entire  time  and  attention  to  the 
said  business  and  shall  engage  in  no  other  business,  undertaking  or  specu- 
lation during  the  continuance  of  this  agreement. 

The  said  Sutton  shall  give  such  part  of  his  time  and  attention  to 
said  business  as  may  be  necessary,  but  shall  not  be  required  to  give  up  his 
present  business  interests. 

6.  This  agreement  shall  bind  the  parties  hereto  until  the  first  day 
of  January,  1909,  at  which  time  it  shall  terminate  unless  expressly  con- 
tinued by  written  agreement  for  a  further  period. 

7.  Neither  partner  may  withdraw  from  the  business  an  amount  in 
excess  of  one  hundred  and  twenty-five  ($125)   dollars  per  month,  and  all 
amounts  so  withdrawn  shall  be  charged  against  the  individual  account  of 
the  partner  withdrawing  the  same. 

8.  All  moneys  of  the  firm  shall  be  deposited  in  convenient  banks  in 
the  City  of  New  York,  subject  to  withdrawal  only  by  the  check  of  the 
firm,  signed  with  the  firm  name  by  the  said  Edgar  H.  Bedell,  who  shall 
have  sole  charge  of  the  finances  of  the  firm. 

9.  Books  of  account  shall  be  kept  and  at  the  end  of  the  year  a 
statement  shall  be  made  showing  the  net  profits  for  the  year,  and  such 
profits  shall  be  divided  between  the  said  partners  as  follows :   40  per  cent, 
of  said  profits  to  the  said  Bedell  and  60  per  cent,  of  the  said  profits  to  the 
said  Sutton. 

10.  The  said  Sutton  guarantees  that  the  profits  accruing  to  the  said 
Bedell  shall^  not  be  less  than  $2,500  per  annum  and  if  at  the  end  of  any  year 
the  proportion  of  net  profits  coming  to  the  said  Bedell  shall  be  less  than 
the  said  sum  of  $2,500,  the  said  Sutton  agrees  and  binds  himself  to  make 
good  the  deficiency  from  his  own  funds. 

11.  Upon  the  permanent  disability  or  inability  of  either  partner  to 
participate  in  the  firm  business,  or  upon  any  disability  or  incapacity  ex- 


ARTICLES   OF   COPARTNERSHIP.  igl 

tending  over  the  period  of  three  months,  the  other  partner  may,  at  his 
option,  have  a  dissolution  of  the  partnership. 

12.  Neither  partner  shall,  either  for  himself  or  for  the  firm,  during 
the  continuance  of  this  agreement,  engage  in  any  sale,  purchase  or  other 
operation,   either   directly  or  indirectly,   in  or   concerning  stocks,   bonds, 
securities  or  commodities  other  than  those  pertaining  to  the  firm  busi- 
ness as  herein  set  forth. 

13.  Neither  partner  shall,  during  the  continuance  of  this  agreement, 
sign,  endorse  or  guarantee  any  commercial  paper  or  other  instrument  or 
make  himself  responsible  for  the  debt,  default  or  miscarriage  of  any  other 
person,  firm  or  corporation,  unless  with  the  written  consent  of  the  other 
partner. 

14.  In  the  event  of  the  death  of  one  of  the  parties  hereto  during 
the  continuance  of  this  agreement,  the  surviving  partner  shall  immediately 
take  an  inventory,  close  the  books  of  the  firm  and  ascertain  the  present 
worth,  and  shall  thereupon  have  the  option  to  pay  the  personal  repre- 
sentatives of  the  deceased  partner  his  original  investment  and  his  share  of 
any  profits  shown  and  one  thousand  dollars   for  his  share  of  the  good- 
will and  continue  the  business  in  the  firm  name  as  his  own,  or  to  sell  the 
entire  assets,  including  the  lease,  firm  name  and  goodwill,  and,  after  pay- 
ing all  outstanding  liabilities,  to  divide  the  remaining  assets  as  is  usual 
in  such  cases. 

15.  In  the  event  of  dissolution  on  account  of  death,  expiration  of 
term,  or  from  any  other  cause,  the  parties  hereto  bind  themselves  to  con- 
duct such  settlement  under  the  directions  and  according  to  the  statements 
made  by  the  Lawyers'  Audit  Company  of  New  York  City,  and  if  either 
partner  refuses  to  be  bound  thereby,  or  resorts  to  the  courts  for  settle- 
ment, all  the  costs  and  expenses  of  such  proceeding  shall  be  taken  from 
his  share  of  the  net  proceeds  of  the  partnership  assets. 

In  Witness  Whereof,  the  parties  hereto  have  hereunto  affixed  their 
hands  and  seals  the  day  and  year  above  mentioned. 

EDGAR  H.  BEDELL.          [L.  s.] 
JOHN  A    SUTTON.          [L.  s.] 
Attest, 

MORRIS  KENWOOD. 


Form  39.     Articles  for  Contracting  Business. 


ARTICLES   OF    AGREEMENT   made   the    isth   day  of  January, 
>  by  and  between  Walter  L.  Driggs,  of  the  City,  County  and  State  of 
New  York,  and  J.  W.  Holmes,  of  the  same  place,  as  follows: 

(1)  The  said  parties  have  agreed  to  become  copartners  in  business, 
and  by  these  presents  do  agree  to  be  copartners  together  under  the  firm 
name  of  "Driggs  and  Holmes,"  and  as  such  copartnership  to  engage  in 
and  carry  on  a  general  contracting  business  in  the  City  of  New  York  and 
elsewhere,  the  office  of  the  said  copartnership  to  be  located  in  the  Borough 
of  Manhattan,  City  of  New  York. 

(2)  The  said  copartnership   is 'to  commence  on  the   I5th   day  of 
January,  1905,  and  to  continue  for  the  term  of  one  year,  unless  sooner 
terminated  as  hereinafter  provided. 


l82  PARTNERSHIP  RELATIONS. 

(3)  The  said  parties  contribute  to  the  said  copartnership  personal 
property  consisting  of  horses,  carts,  wagons,  harnesses  and  tools  and  also 
book  accounts    (a  list  of  which  said  book  accounts   is   annexed  to  this 
agreement;  and  a  bill  of  sale  of  the  aforesaid  personal  property  is  to  be 
executed  and  delivered  at  the  time  of  the  execution  of  this  agreement), 
the  said  property  and  accounts  to  be  and  become  the  property  of  the  said 
copartnership  hereby  formed,  the  said  Walter  L.  Driggs  contributing  two- 
thirds   thereof,    and   the   said   James   W.    Holmes   contributing   one-third 
thereof,  that  being  the  proportion  in  which  the  said  property  and  accounts 
are  owned  by  the  parties  hereto  at  the  time  of  making  this  agreement. 

(4)  The  copartnership  formed  by  this  agreement  assumes  the  debts 
and  liabilities  which  are  set  forth  in  the  memorandum  of  debts  attached 
to  this  agreement,  and  agrees  to  pay  the  same,  said  debts  and  liabilities  hav- 
ing been  created  and  incurred  by  the  parties  hereto  in  the  business  here- 
tofore carried  on  by  them. 

(5)  Said  Driggs  subscribes  the  sum  of  Six  Hundred  Dollars  ($600) 
in  cash,  and  the  said  Holmes  subscribes  the  sum  of  Three  Hundred  Dol- 
lars ($300)  in  cash. 

(6)  The  said  personal  property,  accounts  and  cash  thus  subscribed 
by  the  parties  hereto  are  to  be  used  and  employed  in  common  between 
them  for  the  conduct  of  the  said  business   to  their  mutual  benefit  and 
advantage. 

(7)  It  is  agreed  between  the  parties  hereto  that  at  all  times  dur- 
ing the  continuance  of  this  copartnership  they  will  each  give  their  whole 
time  and  best  endeavors,  and  will  to  the  utmost  of  their  skill  and  power 
exert  themselves  for  their  joint  interest,  profit,  benefit  and  advantage  in 
the  business  aforesaid,  it  being  understood  and  agreed  that  the  said  Driggs 
shall  have  the  financial  management  of  the  said  business,  and  shall  keep, 
or  have  kept  under  his  direction  all  books  of  account  used  in  said  busi- 
ness.    He  shall  sign  all  checks  and  shall  pay  out  and  receive  all  moneys, 
property  and  commodities  of  every  kind  and  nature ;   such  books,  how- 
ever, shall  be  at  all  times  open  to  the  inspection  of  the  said  Holmes. 

(8)  It  is  also  understood  and  agreed  between  the  parties  hereto 
that  on  the  last  day  of  each  and  every  month  they  shall  each  render  and 
make    to    the    other    just    and    true    accounts    of    all    their    transactions, 
wherein  they  shall  state  all  the  transactions  engaged  in  by  them  for  the 
said  copartnership,   as  well   as  all   payments,   receipts   and   disbursements 
made  by  them,  and  all  other  matters  pertaining  to  the  said  business  of 
the  said  copartnership  for  the  month  past.     From  these  statements,  on  the 
first  day  of  each  and  every  month  a  final  and  absolute  account  shall  be 
made  up  of  the  business  for  the  preceding  month,  upon  which  final  monthly 
accounts  shall  be  based  the  payments  to  be  made  to  the  said  parties  hereto 
in  said  business.    After  the  said  monthly  account  is  made  up  and  rendered, 
no  payments  or  allowances  shall  be  made  to  either  party  for  any  sums 
paid  out  by  them  preceding  the  rendition  of  such  account,  it  being  under- 
stood and  agreed  between  the  parties  hereto  that  the  said  monthly  ac- 
count shall  be  final   between  them,   and   shall   settle  their  accounts   and 
business  transactions  as  of  the  first  day  of  each  and  every  month. 

(9)  The  said  parties  hereto  further  agree  that  after  the  payment 
of  the  subscription  of  Six  Hundred  Dollars  ($600)  by  the  said  Driggs  in 
cash,  and  of  the  subscription  of  Three  Hundred  Dollars    ($300)   by  the 
said  Holmes  in  cash,  the  said  parties  paying  the  said  subscriptions  shall, 
after  the  said  monthly  account  has  been  rendered,  divide  the  surplus  profits 
of  the  said  business  equally  between  them,  until,  the  surplus  profits  of  the 
business  shall  reach  the  sum  of  One  Hundred  and  Twenty  ($120)  Dollars 


ARTICLES   OF   COPARTNERSHIP.  183 

per  month.  Whenever  the  said  surplus  profits  of  the  said  business  shall 
exceed  the  sum  of  One  Hundred  and  Twenty  Dollars  ($120)  per  month, 
then  the  excess  over  and  above  that  amount  shall  be  divided  between  the 
said  parties  in  the  following  proportions :  two-thirds  thereof  shall  be  paid 
to  the  said  Driggs,  and  one-third  thereof  to  the  said  Holmes. 

(10)  And  it  is  further  agreed  that  all  losses  which  may  be  in- 
curred in  the  conduct  of  the  said  business  shall  be  borne  and  divided  be- 
tween them  in  the  said  proportion,  two-thirds  by  the  said  Driggs,  and  one- 
third  by  the  said  Holmes. 

(n)  This  agreement  of  copartnership  shall  be  terminated  and  be- 
come null  and  void  as  follows: 

1.  On  the  death  of  either  party  thereto. 

2.  At  any  time  by  either  party  giving  thirty  days  notice  in  writing 
to  the  other  that  he  elects  to  terminate  the  same. 

3.  By  mutual  agreement. 

(12)  On  the  termination  of  this  agreement  the  said  parties  hereto 
shall^  render,  each  to  the  other,  a  true,  just  and  final  account  of  all  things 
relating  to  the  said  business,  and  in  all  things  truly  adjust  the  same.    All 
the  property  of  the  said  copartnership  and  all  the  gains  and  increase  there- 
of, which  shall  appear  to  be  remaining,  whether  in  goods,  moneys,  debts 
or  other  property  of  every  nature  and  description,  shall  be  divided  between 
them,  two-thirds  thereof  to  the  said  Driggs  and  one-third  thereof  to  the 
said  Holmes ;  all  indebtedness,  however,  of  the  said  firm  to  be  first  paid 
and  deducted  before  a  division  of  the  property  can  be  made.     In  case  of 
the  death  of  either  party  the  goodwill  of  the  said  business  shall  belong 
to  the  survivor. 

(13)  It  is  further  agreed  that  neither  of  the  parties  hereto,  dur- 
ing the  continuance  of  said  copartnership,  shall  endorse1  any  note  or  other 
negotiable  instrument  or  otherwise  become  surety  for  any  person  or  per- 
sons whomsoever,  without  the  consent  of  the  other  of  the  said  copartners. 

IN  WITNESS  WHEREOF,  the  parties  hereto  have  hereunto  set 
their  hands  and  seals  the  day  and  year  first  above  written. 

WALTER  L.  DRIGGS.  [L.  s.] 
JAMES  W.  HOLMES.  [L.  s.] 
Attest, 

PHOEBE  M.  BELL. 

THOMAS  WENDELL. 


Form  40.     Articles  for  Manufacturing  Business. 


THESE  ARTICLES  OF  CpPARTNERSHIP  made  and  entered 
into  as  of  the  eighth  day  of  April,  nineteen  hundred  and  five,  by  and 
between  Henry  Gardes,  of  the  City,  County  and  State  of  New  York, 
party  of  the  first  part,  Harvey  Wilson,  of  the  same  place,  party  of  the 
second  part,  and  James  Haskins,  of  the  same  place,  party  of  the  third 
part,  WITNESS: 

I.  The  parties  hereto  for  and  in  consideration  of  the  mutual  provi- 
sions and  agreements  hereinafter  contained,  and  the  sum  of  one  dollar 
each  to  the  other  in  hand  paid,  the  receipt  whereof  is  hereby  acknowledged, 


184  PARTNERSHIP  RELATIONS. 


V 


have  agreed  to  and  do  by  these  presents  become  copartners  together  in  the 
business  of  manufacturing  and  selling  disinfectants  and  disinfecting  ap- 
paratus, and  in  buying,  selling,  renting  and  vending  all  sorts  of  goods, 
wares  and  merchandise  to  said  business  belonging  or  pertaining,  and  to 
conduct  said  business  in  the  City  of  New  York,  and  in  such  other  place 
or  places  as  may  be  expedient  and  beneficial. 

II.  The  firm  name  and  style  of  said  business  shall  be  the  WILSON 
MANUFACTURING  COMPANY.     Said  copartnership  shall  commence 
on  the  day  of  the  date  hereof  and  shall  continue  for  ten  years  there- 
after. 

III.  Each  party  hereto,  hereby  contributes  to  the  said  business  all 
his  right,  title  and  interest  in  and  to  the  assets  of  the  former  firm  known 
as  and  by  the  same  name,  which  was  organized  under  Articles  of  Agree- 
ment bearing  date  the  twenty- third  day  of  November,  eighteen  hundred 
and   ninety-six,   by   and   between   the   parties   hereto,    together   with   one 
Henry  Caldwell  and  which  was  this  day  dissolved  by  mutual  consent,  and 
the  interest  of  said  Caldwell  assigned  to  the  parties  hereto.     It  being  un- 
derstood and  agreed  that  the  contribution  of  each  is  in  the  same  propor- 
tion as  the  interest  of  each  appears  upon  the  books  of  the  said  dissolved 
firm,  saving  that  the  profits  thereof  shall  be  carried  to  the  credit  of  each 
from  the  inception  of  such   former  partnership   in   accordance   with  the 
provisions  of  Paragraph  V  below.     For  the  purpose  of  ascertaining  such 
respective  interests,  an  account  shall  be  stated  between  the  parties  hereto 
in  respect  to  said  dissolved  firm,  and  any  amount  due  from  Henry  Cald- 
well, the  retiring  partner,  as  well  as  any  amount  paid  to  him  by  said  firm 
to  induce  his  retirement,  shall  be  charged  to  the  profit  and  loss  account. 

IV.  The  said  parties   of  the  second   and  third  parts   each  hereby 
agrees  to  contribute  all  his  business  skill  and  experience  and  each  shall  give 
his  whole  time  and  attention  exclusively  to  the  affairs  of  said  business 
and  shall  not  be  engaged,  employed  or  interested  in  any  other  business 
whatever. 

The  party  of  the  second  part  is  to  more  especially  attend  to  the 
manufacturing  department  and  office  work,  and  the  party  of  the  third 
part  is  to  more  especially  attend  to  the  sales  department,  but  in  general 
each  of  said  parties  of  the  second  and  third  parts  shall  at  all  times  attend 
to  such  duties  as  shall  best  serve  the  interests  of  said  business. 

V.  The  profits  and  losses  of  said  business  shall  be  borne  and  di- 
vided between  the  parties  hereto  as  follows :  the  party  of  the  second  part, 
forty-two  and  j£  per  cent,  thereof;  the  party  of  the  third  part,  forty-two 
and  y*  per  cent,  thereof ;  the  party  of  the  first  part,  fifteen  per  cent  thereof. 

VI.  Anything   to   the   contrary  hereinbefore   notwithstanding,    said 
party  of  the  first  part  shall  have  the  privilege  on  the  first  day  of  January, 
nineteen  hundred  and  six:   (i)  To  withdraw  from  said  business;   (2)  To 
continue  the  same  upon  the  terms  hereinbefore  provided;    (3)  To  con- 
tribute the  further  sum  of  twenty-five  hundred  dollars  to  said  business 
(for  which  he  shall  thereupon  be  credited  on   the  books  of  said  firm). 
Upon  such  additional  contribution  of  twenty-five  hundred  dollars,  the  said 
party  of  the  first  part  shall  be  allowed  interest  at  the  rate  of  five  per 
cent,  per  annum,  to  be  charged  as  an  expense  to  the  said  business. 

Said  party  of  the  first  part  shall  notify  in  writing  the  parties  hereto 
on  or  before  the  first  day  of  December,  1905,  of  his  choice  of  the  above 
three  options,  and  in  the  event  of  his  election  to  contribute  the  further 
sum  of  twenty-five  hundred  dollars,  he  thereupon  shall  also  contribute  his 
skill  and  experience  and  devote  all  his  time  and  attention  exclusively  to 
the  said  business  and  shall  not  be  engaged,  employed  or  interested  in  any 


ARTICLES   OF   COPARTNERSHIP.  185 

other  business  whatsoever,  and  the  branch  thereof  to  which  he  shall  more 
especially  attend  shall  be  the  selling  of  goods,  the  management  of  said 
office  and  the  financial  work  of  the  said  firm. 

In  the  event  of  his  election  to  so  contribute  said  sum  of  twenty-five 
hundred  dollars  upon  the  terms  hereinbefore  stated,  then  instead  of  the 
profits  and  losses  being  borne  and  divided  as  provided  in  the  previous 
paragraph,  the  same  shall,  from  and  after  the  first  day  of  January,  1906, 
be  borne  and  divided  between  the  parties  hereto,  share  and  share  alike. 

In  the  event  of  his  election  to  withdraw  from  said  firm,  an  account- 
ing shall  be  had  on  January  first,  nineteen  hundred  and  six,  between  the 
parties  hereto,  and  he  shall  thereupon  be  paid  in  full  the  amount  which 
shall  appear  due  to  him  upon  such  accounting,  but  the  copartnership  shall 
be  continued  between  the  other  parties  hereto  upon  the  same  terms  as 
in  this  contract  provided,  saving  that  the  liability  and  benefit  of  the  pur- 
chase of  the  interest  of  said  party  of  the  first  part  shall  be  divided  equally 
between  said  parties  of  the  second  and  third  parts. 

VII.  Each  of  the  parties  of  the  second  and  third  parts  hereto  shall 
be  entitled  to  draw  weekly  during  the  continuance  of  this  copartnership, 
as  follows :  party  of  the  second  part,  thirty-five  dollars  per  week ;  party  of 
the  third  part,  twenty-five  dollars  per  week;  to  be  charged  to  the  personal 
accounts  of  the  parties  drawing  the  same. 

In  the  event  of  the  marriage  of  the  party  of  the  third  part,  he  shall 
be  entitled  thereafter  to  draw  weekly  an  additional  sum  of  ten  dollars, 
to  be  charged  to  his  personal  account. 

The  party  of  the  first  part  in  the  event  of  his  further  contribution 
of  the  further  sum  of  twenty-five  hundred  dollars  upon  the  first  day  of 
January,  nineteen  hundred  and  six,  upon  the  terms  above  specified,  shall 
be  entitled  on  and  after  that  day  to  draw  weekly  during  the  continuance 
of  this  copartnership  the  sum  of  thirty-five  dollars  per  week,  to  be  charged 
to  his  personal  account. 

It  is  understood  and  agreed  that  no  further  sum  or  sums  shall  be 
drawn  by  either  of  the  parties  hereto  without  the  written  consent  of  the 
others  having  first  been  obtained,  excepting  as  provided  in  Paragraph  XI 
herein. 

VIII.  There  shall  be  kept  and  had  at  the  place  of  business  of  the 
said  copartners  at  all  times  during  the  continuance  of  this  copartnership 
true,  just  and  accurate  books  of  account  of  said  firm  wherein  shall  be 
entered    and    set    down    truly    and    correctly    and    properly,    as    well    all 
money  by  said  copartners  or  either  of  them  received,  paid,  laid  out  and 
expended  in   and  about  their  said  business,  as  also  all   merchandise  by 
them  or  either  of  them  bought  or  sold  by  reason  or  on  account  of  said 
business,  and  all  other  matters  and  things  whatsoever  to  the  said  business 
and  the  management  thereof  in  anywise  belonging,  which  said  books  shall 
at  all  reasonable  times  be  open  to  the  use  and  inspection  of  either  of  said 
copartners,  so  that  either  of  them  may  have  free  access  thereto  without 
any  interruption  or  hindrance  of  the  other,  and  none  of  said  books  nor 
any  papers  or  writing  whatsoever  belonging  to  said  firm,  shall  be  removed 
from  the  place  of  business. 

IX.  The  said  parties  hereby  further  mutually  agree  to  and  with 
each  other  that  during  the  continuance  of  the  said  copartnership  neither 
of  them  shall  nor  will  make,  accept  nor  endorse  any  note,  bill,  cheque, 
draft  or  other  commercial  paper  in  his  own  or  in  said  firm  name,  for  the 
accommodation  or  benefit  of  any  person  or  persons  whomsoever,   or  in 
said  name  or  names  enter  into  any  bond,  undertaking,  guaranty  or  other- 
wise incur  liability  on  his  own  behalf  or  on  behalf  of  said  firm,  for  the 


l86  PARTNERSHIP  RELATIONS 

accommodation  or  benefit  of  any  person  or  persons  whomsoever,  without 
the  consent  in  writing  of  the  other  parties  to  this  agreement. 

X.  All  notes,  cheques  or  other  commercial  paper  shall,  during  the 
continuance  of  this  agreement,  require  the  signature  of  the  party  of  the 
second  part  and  at  least  one  other  member  of  said  copartnership,  and  in 
case  of  the  death  of  said  party  of  the  second  part,  then  the  signature  of 
the  survivors  shall  suffice. 

XI.  It  is  further  agreed  that  said  copartners  shall  on  the  first  day 
of  January  in  each  year  hereafter,  during  the  continuance  of  this  agree- 
ment, or  oftener  if  necessary,  make,  yield  and  render  each  to  the  other 
a  just,  true  and  perfect  inventory  or  account  of  all  profits  and  increase 
by  them  or  either  of  them  made  in  their  said  business  and  of  all  loss  by 
them  or  either  of  them   sustained   in   their   said  copartnership   business. 
Also  all  payments,  receipts,  disbursements  and  all  other  things  by  them 
or  either  of  them  received,  made,  disbursed,  acted,  done  or  suffered  in 
their  said  business.     Upon  said  annual  account  each  of  said  parties  shall 
pay  and  bear  his  just  share  of  such  rents,  expenses  and  losses  as  may  be 
made  as  aforesaid,  and  should  there  have  been  any  profits  in  said  busi- 
ness over  and  above  rents,   expenses   and  losses   his  just  share  thereof 
shall  be  ascertained  and  of  said  share  he  shall  then  be  entitled  to  with- 
draw for  his  own  use  the  equal  one-third  part  and  the  remaining  two- 
thirds  shall  be  placed  to  his  credit  and  shall  not  be  subject  to  withdrawal 
until  the  end  or  sooner  termination  of  this  copartnership,  unless  otherwise 
consented  to  in  writing  by  the  other  copartners. 

XII.  If  at  any  time  hereafter  and  before  the  accounts  between  the 
parties  concerning  the  said  copartnership  shall  be  finally  settled  and  closed, 
any  dispute  or  difference  shall  arise  between  the  parties  hereto,  concern- 
ing the  true  construction  of  anything  in  these  presents,  or  any  accounts  to 
be  stated  or  settled  in  pursuance  hereof,  or  the  valuation  of  the  assets,  or 
anything  relating  to  the  partnership,  or  the  concerns  thereof,  or  out  of 
the  acts  or  omissions  of  either  party  to  this  agreement,  then  and  so  often 
as  the  same  shall  happen,  all  such  matters  in  difference  shall  be  submitted 
and  referred  to  the  award  and  determination  of  five  arbitrators,  to  be 
chosen  one  by  each  of  the  parties  to  this  Agreement,  and  the  fourth  and 
fifth  arbitrators  shall  be  chosen  by  the  three  chosen  by  the  parties  hereto, 
and  the  decision  and  award  of  any  three  of  the  five  arbitrators  in  writing 
shall  be  binding  and  final  between  the  parties  to  this  agreement,  and  shall 
be  carried  out  and  performed  by  them. 

XIII.  On  the  dissolution  of  this  copartnership  a  final   accounting 
shall  be  had  concerning  all  things  connected  with  the  business,  and  after 
payment  of  all  lawful  debts  of  said  firm  and  the  repayment  of  the  contri- 
bution of  said  party  of  the  first  part  to  said  firm,  all  and  every  the  assets 
of  said  firm  shall  be  reduced  to  money  and  the  proceeds  divided  in  pro- 
portion to  the  interest  of  the  parties  hereto,  as  shown  by  the  books  of 
said  firm. 

It  is  expressly  understood  and  agreed  that  in  case  such  copartner- 
ship is  dissolved  before  the  expiration  of  the  time  herein  fixed,  then  and 
in  that  event,  said  party  of  the  second  part  upon  such  dissolution  shall 
be  entitled  to  a  further  credit  of  seven  hundred  and  fifty  dollars  on  the 
books  of  said  firm,  as  an  additional  consideration  for  his  contribution  to 
the  capital  thereof. 

XIV.  In  the  event  of  the  death  of  either  of  the  parties  hereto  be- 
fore the  time  herein  fixed  for  the  dissolution  of  said  copartnership,  such 
copartnership  shall  nevertheless  be  continued  between  the  surviving  parties 
hereto  upon  the  same  terms.     And  it  is  further  agreed  that  the  legal  rep- 


ARTICLES   OF   COPARTNERSHIP.  187 

resentative  of  said  decedent  shall  succeed  to  all  the  rights  and  benefits 
of  said  decedent  and  that  said  copartnership  shall  be  continued  with  said 
representative  of  said  decedent,  if  he  so  elects,  in  the  latter's  stead,  upon 
the  same  terms  as  hereinbefore  provided,  saving  that  said  representative 
of  said  decedent  shall  be  relieved  from  any  contribution  in  lieu  of  the 
services  of  said  decedent,  and  that  the  share  of  the  profit  and  losses  of 
such  representative  shall  be  reduced  cne-half,  and  the  share  of  the  sur- 
vivors equally  increased  to  the  extent  of  such  one-half,  and  further  the 
weekly  drawings  of  such  representative  of  such  decedent  shall  be  reduced 
one-half. 

It  is  also  understood  and  agreed  that  in  case  of  the  death  of  either 
of  the  parties  hereto,  before  the  time  herein  fixed  for  the  dissolution  of 
said  copartnership,  the  representative  of  said  decedent,  in  the  event  of  his 
election  not  to  continue  the  same  as  in  the  last  paragraph  provided,  shall 
nevertheless  not  be  entitled  to  withdraw  the  share  of  said  decedent  from 
such  copartnership,  if  solvent,  until  the  expiration  of  six  months  after 
such  death,  and  in  that  meantime,  the  representative  of  such  decedent 
shall  be  entitled  to  and  bear  an  amount  equal  to  one-half  of  the  profits 
and  losses  said  decedent  would  have  been  entitled  to  and  borne  if  living, 
and  interest  upon  the  share  of  said  decedent  from  the  time  of  his  death 
until  such  payment,  at  the  rate  of  five  per  cent,  per  annum.  The  repre- 
sentative of  such  decedent  shall  notify  in  writing  the  surviving  partners 
of  his  election  under  the  above  provisions  within  sixty  days  after  such 
decease — otherwise  he  shall  be  deemed  to  elect  to  withdraw  the  shares  of 
such  decedent. 

XV.  It  is  also  expressly  agreed  that  a  waiver  by  either  of  the  parties 
hereto  of  any  breach  of  any  covenant,  agreement  or  condition  of  this  in- 
strument shall  not  bar  his  right  to  avail  himself  of  any  subsequent  breach 
of  any  such  covenant,  agreement  or  condition. 

IN  WITNESS  WHEREOF,  the  parties  to  these  presents  have 
hereunto  set  their  hands  and  seals  as  of  the  day  and  year 
first  above  written. 

HENRY  GARDES. 
HARVEY  WILSON. 

Sealed  and   delivered  JAMES  HASKINS. 

in  the  presence  of 

JASPER  FREEMAN. 

STATE  OF  NEW  YORK,      ) 
City  and  County  of  New  York.  J  s' 

On  this  I3th  day  of  April,  1905,  before  me  personally  came 
Henry  Gardes,  Harvey  Wilson  and  James  Haskins,  to  me  known  and 
known  to  me  to  be  the  individuals  described  in  and  who  executed  the  fore- 
going instrument  and  they  duly  and  severally  acknowledged  to  me  that 
they  executed  the  same. 

WELLS  H.  HARRIS, 

Notary  Public  in  and  for 
New  York  County. 


Under  the  laws  of  New  York  a  firm  doing  business  under 
a  trade  name,  as  in  the  foregoing  articles,  is  required  to  file 


,1 


1 88  PARTNERSHIP  RELATIONS. 

a  certificate  in  the  county  clerk's  office  setting  forth  the  busi- 
ness to  be  conducted,  the  name  under  which  they  intend  to  do 
business  and  the  full  names  and  postoffice  addresses  of  the 
partners. 

Form  41.     Professional  Partnership. 

MEMORANDA  OF  AGREEMENT. 


This  Agreement  made  this  23rd  day  of  June,  1905,  by  and  between 
Edward  A.  Waldron,  Robert  Andrews  Littell  and  Walker  Orton  Tilton, 
all  of  the  City,  County  and  State  of  New  York,  Witnesseth: 

1.  That  the  said  parties  hereby  enter  into  certain  partnership  rela- 
tions for  the  practice  of  the  law  in  New  York  City. 

2.  The   partnership    shall   be   conducted    under   the   firm   name   of 
"Waldron,  Littell  &  Tilton,"  and  the  offices  of  the  said  firm  shall  be  in 
the  offices  now  occupied  by  the  said  Waldron  in  the  Hanover  Bank  Build- 
ing, until  the  expiration  of  his  lease  on  May  ist,  1908,  after  which  the 
offices  shall  be  located  as  determined  by  the  parties  hereto. 

3.  This  partnership  shall  commence  on  the  first  day  of  July,  1905, 
and  shall  continue  for  the  period  of  five  years  unless  sooner  terminated 
by  death  or  mutual  agreement. 

4.  The  present  library  and  office  furniture  in  said  offices  are  the 
property  of   Edward   A.    Waldron   and   will   be   retained  by  him   as   his 
personal  property;  the  said  Littell  and  Tilton  shall  bring  their  own  desks 
and  libraries  as  their  personal  property,  and  all  of  said  property  shall  be 
inventoried  and  all  books  shall  be  marked  with  the  name  of  the  individual 
owner.     The  said  Waldron  having  the  larger  library  and  owning  most  of 
the  furniture  the  other  partners  agree  to  pay  into  the  funds  of  the  partner- 
ship to  be  used  for  partnership  expenses  each  the  sum  of  two  thousand 
dollars.     This  based  on  the  belief  that  the  use  of  the  library  and  furni- 
ture of  Mr.  Waldron  for  the  term  of  five  years  is  worth  two  thousand 
dollars.     Each  partner  shall  keep  up  the  sets  of  reports  owned  by  him  at 
his  own  expense. 

5.  Each  partner  shall  finish  and  complete  all  legal  work  and  cases 
now  in  hand  and  shall  retain  the  receipts  therefrom  but  all  new  work  and 
new  cases  shall  belong  to  the  firm  and  shall  be  taken  for  the  account  of  the 
firm.    All  moneys  received  by  any  partner  on  account  of  the  firm  shall  be 
deposited  in  the  name  of  the  firm  in  the  Hanover  National  Bank  and  shall 
be  checked  out  by  the  cashier  of  the  firm,  each  check  being  countersigned 
by  a  member  of  the  firm. 

6.  All  expenses,  rents,  wages,  salaries  and  all  losses  and  damages 
shall  be  paid  from  the  firm  bank  account  and  if  at  any  time  there  shall  be 
a  deficiency  therein,  the  three  partners  shall  contribute  in  the  same  pro- 
portion as  they  share  in  profits. 

7.  The  partners  shall  share  the  profits  of  the  business  in  the  fol- 
lowing proportions:   Edward  A.   Waldron  shall   have  four-tenths  of  the 


ARTICLES   OF    COPARTNERSHIP.  189 

profits  and  each  of  the  other  partners  three-tenths  thereof,  and  profits 
shall  be  apportioned  at  the  end  of  each  month,  but  a  cash  balance  suffi- 
cient to  pay  the  expenses  of  the  office  for  at  least  four  months  shall  al- 
ways be  retained  in  the  bank. 

8.  Each   partner   shall   during  the   term  of  this   partnership   devote 
his   whole  time  and  attention   to   the   firm  business,   except   for   the  time 
necessary  to  complete  and  wind  up  his  present  undertakings,  and  he  shall     i      / 
not  during  the  term  of  this  partnership  engage  in  any  outside  business,    \S 
undertaking  or  engagement  nor  accept  any  office  or  trust,  except  with  the  ^ 
consent  of  his  partners  and  for  the  benefit  of  the  firm.     Any  partner  may, 
however,  do  gratuitous  work  for  his  immediate  family  and  connections. 

9.  Upon  the  death  or  permanent  disability  from  any  cause  of  any 
partner,    the   partnership    shall    be   dissolved,    but   the    remaining   partners 
shall   complete   all   partnership  business   on  hand   and   shall   turn  over   to 
the  personal  representatives  of  the  deceased  or  retiring  partner  his  pro- 
portion of  the  profits  from  such  business  for  the  period  of  one  year  after 
the  dissolution,  after  which  all  profits  shall  belong  to  the  remaining  part- 
ners. 

10.  Neither   partner   shall    during  the  continuance  of  this  partner- 
ship, engage  in  any  sale,  purchase  or  other  operation,   either  directly  or 
indirectly,   in  or  concerning   stocks,   bonds,   securities   or  commodities,   or    i  / 
sign,  endorse  or  guarantee  any  commercial  paper  or  other  obligation,  be-    r 
come  bail  or  surety,  or  make  himself  responsible  for  the  debt,  default  or 
miscarriage  of  any  other  person,  firm  or  corporation,  unless  with  the  writ- 
ten consent  of  his  partners. 

11.  There  shall  be  a  cashier  who  shall  have  charge  of  the  books 
and  accounts  of  the  firm.     Each  partner  shall  promptly  inform  him  of  all 
work  and  business  done  by  such  partner  and  give  the  proper  data  for  charg- 
ing  and  collecting  the  same.     Said  cashier  shall  keep  the  books  and  ac-[// 
counts  in  a  business-like  and  intelligible  manner  and  each  partner  shall 
have  access  to  the  same  at  all  times.     At  the  end  of  each  month  he  shall 
make   a    statement   showing   the   condition   of   the   business,   the   cash   on 
hand  and  the  amount  available  for  division  among  the  partners. 

12.  Upon  the  dissolution  of  the  partnership  from  any  cause,  each    (/ 
partner  shall  take  the  papers  and  business  of  those  clients  whose  business 

he  has  usually  transacted  unless  the  client  decides  to  make  other  arrange- 
ments ;  and  in  event  of  the  death  of  one  partner,  each  surviving  part- 
ner shall,  with  the  consent*  of  the  clients,  take  the  papers  and  business  of 
those  clients  who  have  usually  consulted  him. 

13.  If  any  partner  shall  die  during  the  continuance  of  this  partner-  ^ 
ship,  the  surviving  partners  may  have  the  option  of  purchasing  his  books 
and  furniture  at  a  price  to  be  agreed  upon  between  them  and  the  per- 
sonal representatives,  or,  upon  failure  by  them  to  agree,  at  the  valuation 

of  some   disinterested  person  satisfactory  to  all   concerned. 

In  Witness  Whereof,  the  parties  hereto  have  hereunto  affixed  their 
hands  and  seals  the  day  and  year  first  above  written. 

EDWARD  A.  WALDRON.  [L.  s.] 

ROBERT  ANDREWS  LITTELL.  [L.  s.] 

WALTER  ORTON  TILTON.  [L.  s.] 


190  PARTNERSHIP   RELATIONS. 

Form  42.     Married  Woman's  Partnership. 


THESE  ARTICLES  OF  COPARTNERSHIP  made  as  of  this  first 
day  of  December,  nineteen  hundred  and  five,  between  WILLIS  GARD- 
NER, of  the  City,  County  and  State  of  New  York,  party  of  the  first  part, 
and  ELLEN  WARDWELL,  of  the  same  place,  party  of  the  second  part, 
WITNESS: 

That  the  parties  hereto  hereby  agree  with  each  other  in  manner 
following : 

FIRST. 

To  become  copartners  in  business  under  and  by  the  firm  name  of 
GARDNER  &  WARDWELL,  in  the  business  of  manufacturing,  dealing 
in  and  selling  at  wholesale,  braids,  cords,  moulds,  &c.,  at  the  premises 
No.  148  East  Houston  Street,  in  the  City  of  New  York;  that  said  copart- 
nership is  to  commence  on  the  date  hereof  and  is  to  terminate  on  the  first 
day  of  December,  in  the  year  nineteen  hundred  and  ten. 

SECOND. 

To  the  ends  and  purpose  of  such  copartnership,  said  Gardner  shall 
contribute  the  sum  of  FIVE  THOUSAND  DOLLARS  in  cash;  and  the 
said  Wardwell  shall  contribute  the  sum  of  EIGHTY-FIVE  HUNDRED 
DOLLARS  in  manner  following:  The  business  now  conducted  under  the 
name  of  GARDNER  &  WARDWELL,  at  said  premises,  No.  148  East 
Houston  Street,  in  the  City  of  New  York,  together  with  the  goodwill 
of  said  business  and  all  the  assets  of  every  kind  belonging,  being  mainly 
the  machinery  (excepting  one  Singeing  Machine,  two  Tipping" Machines, 
and  one  Straw  Working  Machine),  tools,  fixtures  and  other  paraphernalia 
appertaining  to  said  business  and  contained  in  said  premises,  stock  in  trade, 
consisting  of  raw  material,  goods  manufactured  and  in  process  of  manu- 
facture, good  and  collectible  bills  receivable,  amounting  to  at  least  Two 
Thousand  Dollars,  moneys  deposited  in  the  Columbia  Bank,  in  the  City  of 
New  York,  amounting  to  about  Three  Hundred  Dollars,  lease  of  said 
premises,  contracts  for  the  purchase  of  raw  material,  &c.,  &c.,  subject  only 
»to  the  payment  of  liabilities  of  said  Gardner  &  Wardwell,  not  exceeding 
the  sum  of  Three  Thousand  Eight  Hundred  Dollars. 

The  said  party  of  the  second  part  expressly  represents  unto  the  said 
party  of  the  first  part  that  she  is  the  owner  in  her  own  right  of  the  prop- 
erty contributed  by  her  to  such  copartnership,  and  that  the  same  is  free 
and  clear  of  all  incumbrances  and  claims  of  every  sort,  and  that  the  only 
liabilities  against  her  or  against  said  business  are  those  stated  above,  to- 
wit,  not  exceeding  Thirty-eight  Hundred  Dollars. 

THIRD. 

The  said  party  of  the  first  part  shall  give  his  full  and  exclusive  time 
and  his  best  endeavors  for  the  profit,  benefit  and  advantage  of  the  said 
copartnership. 

Said  party  of  the  second  part  hereby  agrees  to  contribute  the  full 
and  exclusive  time  and  services  of  her  Husband,  Henry  Wardwell,  in 
said  business ;  said  Henry  Wardwell  to  be  engaged  in  such  capacity  in 
said  business  as  may  be  to  its  best  advantage  and  benefit. 


ARTICLES    OF   COPARTNERSHIP. 


191 


All  gains,  profits  and  increase  which  shall  come,  grow  or  arise  by 
virtue  of  said  business  shall  be  divided  between  them  equally,  and  all 
losses  which  shall  be  incurred  in  the  conduct  of  the  said  business  shall  be 
borne  and  paid  between  the  parties  hereto  equally. 

Interest  at  the  rate  of  six  per  cent,  per  annum  shall  be  allowed  to 
the  said  Wardwell  on  the  amount  of  the  excess  of  her  capital  account 
standing  from  time  to  time  to  her  credit — such  interest  to  be  adjusted  and 
credited  annually  at  the  time  of  the  stating  of  the  regular  accounting. 

Each  of  the  parties  hereto  at  the  time  of  each  annual  accounting 
shall  be  privileged  to  withdraw  one-half  of  the  profit  for  that  current  year 
then  standing  to  such  copartner's  credit,  and  the  other  one-half  of  the 
profit  shall  be  allowed  to  remain  in  the  business  for  the  purpose  of  in- 
creasing the  capital  stock  thereof,  and  shall  be  credited  to  each  at  the 
time  of  the  stating  of  the  regular  accounting.  BUT,  nevertheless,  it  is 
understood  that  until  the  capital  account  of  the  said  Gardner  shall  equal 
that  of  the  said  Wardwell,  the  said  Gardner  shall  allow  all  of  his  profits 
to  remain  in  said  business  for  the  purpose  of  increasing  his  capital  con- 
tribution thereto. 

It  is  also  understood  that  said  Gardner  may,  from  time  to  time,  if 
he  so  desires,  increase  his  capital  contribution  to  said  firm  until  it  equals 
that  of  the  said  Wardwell. 

FOURTH. 

There  shall  be  kept  at  all  times  during  the  continuance  of  said 
copartnership,  perfect,  just  and  true  books  of  account  wherein  each  of 
said  copartners  shall  enter  or  cause  to  be  entered  all  matters  and  things 
whatsoever  to  the  said  business  and  the  management  thereof  in  anywise 
belonging;  which  books  shall  be  used  in  common  between  them  so  that 
either  of  them  may  have  access  thereto  without  any  interruption  or  hin- 
drance of  the  other. 

And  also  the  said  copartners  on  the  first  day  of  December  in  each 
year  shall  make,  yield  and  render  each  to  the  other  a  true,  just  and  per- 
fect inventory  and  account  of  all  profits  and  increase  by  them  or  either 
of  them  made,  and  of  all  losses  by  them  or  either  of  them  sustained,  and 
a  full  account  and  balance  shall  be  taken  of  all  matters  and  things  what- 
soever in  anywise  belonging  to  said  business  in  order  to  ascertain  the 
exact  condition  thereof. 

FIFTH. 

Each  of  the  parties  hereto  may  draw  from  the  said  copartnership 
for  his  or  her  own  separate  use  the  sum  of  Thirty  Dollars  ($30)  per 
week,  the  same  to  be  charged  as  an  expense  of  the  -business  and  neither 
of  them  shall  take  any  further  sum  for  his  or  her  own  separate  use  with- 
out the  consent  of  the  other  in  writing. 

SIXTH. 

At  the  end  or  sooner  determination  of  the  said  copartnership  term, 
the  said  copartners  each  to  the  other  shall  make  a  true,  just  and  final 
account  of  all  things  relating  to  the  said  business  and  in  all  things  truly 
adjust  the  same,  and  all  the  property  and  assets  of  the  copartnership  re- 
maining after  the  discharge  of  all  the  liabilities  shall  be  distributed  be- 
tween the  parties  hereto  according  to  their  respective  rights  and  interest 
as  they  shall  then  exist  under  the  terms  of  this  Agreement. 


192  PARTNERSHIP   RELATIONS. 

IN  WITNESS  WHEREOF,  the  parties  to  these  presents  have 
hereunto  set  their  hands  and  seals  as  of  the  day  and  year  first 
above  written. 

WILLIS    GARDNER. 
ELLEN    WARDWELL. 
In  presence  of 

JOHN  CYPHER. 


STATE  OF  NEW  YORK,      )        . 
City  and  County  of  New  York,  f 

On  this  loth  day  of  December,  1905,  before  me  personally  came 
Willis  Gardner  and  Ellen  Wardwell,  to  me  known  and  known  to  me  to 
be  the  individuals  described  in  and  who.  executed  the  foregoing  instru- 
ment and  they  duly  and  severally  acknowledged  to  me  that  they  executed 
the  same. 

JOHN  DURHAM, 

Notary  Public  in  and  for 
the  County  of  New  York. 


CHAPTER  XXVI. 
PARTNERS'  AGREEMENTS. 

Form  43.     Agreement  Taking  in  New  Partner. 


(a)  This  Indenture  Witnesseth,  That  Whereas:  William  Benedict 
and  Henry  H.  Lathrop,  both  of  New  York  City,  have  heretofore  conducted 
a  certain  hardware  business  at  No.  1150  Amsterdam  Avenue,  in  said  City, 
under  the  firm  name  of  Benedict  &  Lathrop,  and 

Whereas,  Frank  C.  Fairchild  desires  to  become  a  member  of  said 
firm  and  to  share  in  the  profits  of  said  business ; 

Now,  Therefore,  In  consideration  of  the  investment  of  eight  thou- 
sand dollars  ($8,000)  by  the  said  Fairchild  in  the  said  business  and  his 
agreement  to  devote  the  whole  of  his  time  and  attention  to  the  said  busi- 
ness, to  the  exclusion  of  any  other  business  or  undertaking,  it  is  agreed 
by  the  said  parties  first  named  and  the  said  Fairchild,  that  the  said  Fair- 
child  shall  from  the  date  of  this  instrument  be  a  full  and  equal  partner 
in  the  said  business  with  the  said  Benedict  and  Lathrop,  and  shall  share 
equally  with  them  the  gains  and  losses  of  the  said  business,  to  each  one- 
third  upon  the  terms  and  conditions  following : 

1.  The  firm  name  shall  hereafter  be  Benedict,  Lathrop  &  Co. 

2.  The  term  of  existence  of  the  new  firm  shall  be  five  years  from 
the  date  hereof. 

3.  The  said  Fairchild  shall  be  credited  with  the  entire  sum  of  eight 
thousand  dollars    ($8,000)   as  his  investment  in  the  business. 

4.  The  newr   firm   shall   assume   and  pay  the  outstanding   liabilities 
of  the  old  firm   as  per   schedule  of  liabilities   hereto  annexed,   and   shall 
1>e  entitled  to  all  the  credits  and  claims  of  the  old  firm  and  to  all  other 
assets  and  property  thereof. 

5.  In  all  matters  not  herein  expressly  specified  otherwise,  the  new 
firm  shall  be  governed  by  the  articles  of  copartnership  executed  January 
i  st.  1902,  between  the  said  Benedict  and  Lathrop,  which  articles  are  hereto 
annexed  and  made  part  hereof. 

In  Witness  Whereof,  the  parties  hereto  have  hereunto  affixed  their 
hands  and  seals  this  thirtieth  day  of  October,  nineteen  hundred 
and  four. 

WILLIAM    BENEDICT.  [L.  s.] 

HENRY   H.   LATHROP.  [L.  s.] 

FRANK   C.    ^ATRCHILD.          [L.  s.] 

Witness  to  all  three  signatures, 
ALBERT  ENSLEE. 

193 


194  PARTNERSHIP  RELATIONS. 

Form  44.     Agreement  for  Dissolution.     Short  Form. 

"Agreement  made  and  entered  into  this  I3th  day  of  March,  1874,  by 
and  between  Isaac  Bernheimer,  party  of  the  first  part,  Jacob  Goldsmith, 
party  of  the  second  part,  and  Simon  Leserman,  party  of  the  third  part, 
Witnesseth : 

First.  That  it  is  hereby  mutually  agreed  that  the  copartnership 
heretofore  existing  between  all  of  the  parties  hereto  under  the  name  and 
style  of  the  "Oleophene  Oil  Co."  shall  be  and  the  same  is  hereby  wholly 
dissolved. 

Second.  That  the  said  Isaac  Bernheimer  only  shall  have  the  power 
and  authority,  and  the  same  is  hereby  accorded  and  granted  unto  him, 
of  taking  charge  of  all  the  assets  of  the  said  copartnership,  to  collect  and 
dispose  of  the  same  to  the  best  advantage,  to  compromise  and  settle  claims 
of  the  firm  and  to  pay  and  meet  all  the  obligations  and  debts  of  said  co- 
partnership out  of  the  said  assets,  and  is  alone  authorized  to  sign  in 
liquidation. 

In  witness  whereof,  the  parties  to  these  presents  have  hereto  set 
their  hands  and  affixed  their  seals  the  day  and  the  year  first  above  written. 

ISAAC  BERNHEIMER.  [L.  s.] 

JACOB  GOLDSMITH.  [L.  s.] 

SIMON  LESERMAN.  [L.  s.] 

Sealed  and  delivered  in  the 
presence  of 

WM.  J.  TRIMBLE."  ( 

The  foregoing  agreement  for  dissolution  was  brought 
in  as  an  incident  in  the  case  of  Leserman  v.  Bernheimer,  113 
N.  Y.  43.  The  sufficiency  or  legal  effect  of  the  agreement 
was  not  questioned.  It  is  a  good  example  of  a  brief  instru- 
ment of  its  kind. 

Form  45.     Agreement  for  Dissolution. 

AGREEMENT,  made  this  first  day  of  February,  1884,  between 
Evan  T.  Hoopes  and  John  -Merry,  both  of  the  City  of  New  York, 
WITNESSETH : 

That  the  copartnership  known  as  Hoopes  &  Merry  heretofore  ex- 
isting between  the  said  parties,  is  hereby  dissolved  upon  the  following 
terms : 

I.  Said   Hoopes   shall,   upon   the  execution   of  this   agreement,   re- 
ceive of  the  partnership  funds  $4,500  in  cash,  of  its  bills  receivable  en- 
dorsed by  the  firm,  $7,500  and  all  interest  on  the  same,  also  the  personal 
note  of  the  said  Merry,  to  the  amount  of  $5,000  payable  one  year  after 
date  with  6%  interest,  and  merchandise  from  stock  to  be  selected  by  the 
said  Hoopes  to  the  value  of  $5,000  at  invoice  prices. 

II.  Said  firm   of  Hoopes   &  Merry  shall   assign  the  existing  lease 
of  the  premises,  No.  189  Fifteenth  Street,  occupied  by  said  firm  to  the  said 


PARTNERS'  AGREEMENTS.  195 

Hoopes,  and  thereupon  the  said  Hoopes  shall  lease  the  said  premises  to 
the  said  Merry  for  the  remainder  of  the  term,  twenty-seven  months  from 
February  ist,  1905,  at  a  monthly  rental  of  $150,  payable  on  the  first  day 
of  each  month,  and  the  said  Hoopes  shall  also  execute  a  lease  to  the  said 
Merry  of  the  plant,  including  office  fixtures,  horses  and  wagons  for  the 
like  period  for  the  consideration  of  one  dollar,  with  a  proviso  that  in  case 
of  default  in  payment  of  said  rent  reserved,  the  said  Hoopes  may  enter 
and  take  possession  of  said  premises  and  plant. 

III.  Upon  the  expiration  of  the  said  period  of  twenty-seven  months, 
and  all  rents  and  payments  reserved  to  said  Hoopes  having  been  duly  paid, 
the  said  Hoopes  shall  execute  and  deliver  to  the  said  Merry  a  bill  of  sale 
conveying  the  said  plant  for  the  sum  of  $1,000  which  the  said  Merry  shall 
pay  therefor. 

IV.  The  said  Merry  shall  succeed  to  and  assume  all  of  the  obli- 
gations and  liabilities  of  the  firm  of  Hoopes  &  Merry,  and  shall  have  the 
exclusive  right  to  the  use  of  the  trade  name,  trade  marks,  goodwill  and 
custom  of  the  said  firm. 

V.  If  the  said  Hoopes  should  neglect  to  pay  to  his  landlord  the 
rent  of  said  premises  within  five  days  after  the  same  is  due,  said  Merry 
may  pay  such  rent  so  neglected  to  be  paid  and  charge  the  same  to  Hoopes' 
account. 

VI.  If  the  premises  shall  be  destroyed  by  fire,  so  that  by  terms  of 
the  lease  the  rent  ceases,  then  the  said  Merry  shall  be  released  from  his 
obligation  to  pay  $150  monthly  to  the  said  Hoopes. 

Witness  our  hands  and  seals  the  day  and  year  first  above  written. 

EVAN  T.  HOOPES.  [L.  s.] 

JOHN   MERRY.  [L.  s.] 


This  is  substantially  the  agreement  in  Merry  v.  Hoopes, 
in  N.  Y.  415,  except  as  to  the  last  part  of  Article  IV.  If  this 
had  appeared  in  the  original  in  the  form  here  shown,  the  ques- 
tion as  to  whether  Merry  had  the  exclusive  right  to  the  trade 
marks,  etc., — which  was  the  point  at  issue  in  that  case — could 
not  have  arisen. 

Form  46.     Agreement  for  Incorporation. 

This  Agreement  for  Incorporation  made  this  I2th  day  of  October, 
I905>  by  and  between  Albert  Van  Zandt  and  John  K.  Elridge,  copartners 
in  the  manufacture  and  sale  of  paints,  oils  and  varnishes,  in  the  City  of 
Brooklyn,  New  York,  under  the  firm  name  of  Van  Zandt  &  Elridge, 
WITNESSETH : 

1.  That   the   business   heretofore   conducted   by   said   firm   shall   be 
incorporated  under  the  laws  of  the  State  of  New  York  as  the  Van  Zandt 
Varnish  Company. 

2.  That  the  capital  stock  of  said  corporation  shall  be  one  hundred 
thousand   dollars    ($100,000),  to  be  issued   full  paid   in  exchange  for  the 
said  business  as  a  going  concern,  including  all  of  its  assets,  credits,  trade 


196  PARTNERSHIP   RELATIONS. 

names,  formulae  and  goodwill  and  the  said  incorporated  Company  shall 
assume  all  of  the  outstanding  liabilities  of  the  said  firm  business  as  ex- 
isting at  the  time  of  transfer. 

3.  That  the  stock  of  said  corporation  shall  be  issued  as   follows : 
to  the   said   Albert  Van  Zandt,   $30,000  par   value;    to   John   K.    Elridge, 
$30,000  par  value ;  to  the  firm  of  Van  Zandt  &  Elridge,  $40,000  par  value ; 
and  it  is  covenanted  and  agreed  that  the  said  $40,000  issued  in  the  firm 
name  shall  be  returned  by  the  said  firm  to  the  corporation  to  be  sold  as 
treasury  stock  at  not  less  than  fifty  cents  on  the  dollar,  to  the  persons, 
other  than  the  parties  hereto,  named  as  its  board  of  directors. 

4.  That  the  board  of  directors   shall  consist  of  five   members  and 
the  first  board  named  in  its  charter  shall  consist  of  Albert  Van  Zandt, 
John  K.   Elridge,   Edgar  Van   Zandt,   Walter   P.   Elridge  and   Marcus   P. 
Bliss. 

5.  That    cumulative    voting    shall    be    employed    in    the    election    of 
directors ;   that   directors   shall   be   stockholders,   and   that  the   salaries   of 
officers  shall  be  fixed  or  changed  only  by  a  four-fifths'  vote  of  the  entire 
board. 

6.  That   the   first   officers   of   the   corporation    shall  be   as    follows : 
President,    Albert    Van    Zandt;    Vice-President    and    Treasurer,    John    K. 
Elridge ;  Secretary,  Edgar  Van  Zandt,  and  that  the  President  and  Treasurer 
shall  each  have  an  annual  salary  of  $3,000  and  that  the   Secretary  shall 
have  an  annual  Salary  of  $1,500. 

7.  That  after  the   formation  of  said  corporation  the   existing  firm 
of  Van  Zandt  &  Elridge  shall  be  formally  dissolved  and  its  business  con- 
nections and  the  general  public  shall  be  formally  notified  thereof. 

Jn  Witness  Whereof  the  parties  have  hereunto  affixed  their  hands 
and  seals  on  the  day  and  year  first  above  written. 

ALBERT   VAN    ZANDT.  [SEAL] 

JOHN    K.    ELRIDGE.  [SEAL] 

Attest, 

WALTER  P.  ELRIDGE. 


Form  47.     Agreement  for  Continuance. 

(a)  This  Agreement  made  this  loth  day  of  October,  1905,  by  and 
between  George  B.  Northrop  and  Arthur  V.  Bridgman,  both  of  the  City 
of  Newark  and  State  of  New  Jersey,  Witnesseth : 

That  Whereas,  The  said  parties  have  been  engaged  in  the  business 
of  making  and  selling  furniture  in  the  said  City  of  Newark  under  the 
firm  name  of  Northrop  &  Co.,  and  under  the  terms  of  certain  Articles  of 
Copartnership  executed  by  the  said  parties  three  years  heretofore  for  the 
term  of  three  years,  which  said  term  is  now  about  to  expire; 

Now  Therefore,  The  said  parties  covenant  and  agree  to  continue  the 
said  partnership  under  the  said  articles  for  the  further  term  of  three  years, 
unless  sooner  discontinued  or  amended  by  mutual  agreement,  and  the  said 
original  articles  are  hereto f attached  and  made  part  hereof. 

Witness   our   hands    and    seals    the    day   and   year   first   above    men- 
tioned. 

GEORGE  B.  NORTHROP.  [L.  s.] 

ARTHUR  V.  BRIDGMAN.         [L.  s.] 


PARTNERS     AGREEMENTS. 


197 


(b)  We,  the  parties  to  the  foregoing  Articles,  hereby  covenant  and 
agree  to  extend  the  same  and  be  bound  by  the  same  for  the  further  period 
of  three  years  from  the  date  of  expiration. 

Executed  in  Newark,  N.  J.,  this  loth  day  of  October,   1905. 

GEORGE  B.  NORTHROP.          [SEAL] 
ARTHUR  V.  BRIDGMAN.        [SEAL] 


Either  of  these  forms  would  be  legally  sufficient.  The 
second  would  usually  be  endorsed  on  the  original  articles,  the 
first  would  be  attached  to  it,  or  might  also  be  drafted  on  the 
same  sheets  as  the  original  agreement. 


CHAPTER  XVII. 


PROFIT  SHARING  AGREEMENTS. 


Form  48.     Agreement  to  Share  Profits  for  Services. 


This  Agreement  made  this  loth  day  of  October,  1905,  by  the  firm 
of  Wilkins,  Lewis  &  Co.,  of  the  City  and  State  of  New  York,  and  Theo- 
dore L.  Comstock,.  of  Jersey  City,  New  Jersey,  Witnesseth : 

1.  The  said  Comstock  is  hereby  employed  by  said  firm  for  the. term 
of  one  year  from  January  I,  1906,  renewable  thereafter  on  like  terms  at 
the  pleasure  of  both  parties  hereto,  as  salesman  and  manager  of  its  sales 
department,   to  which  the  said   Comstock  is  to  give  his   entire  time  and 
attention. 

2.  The  said  Comstock  shall  receive  an  annual  salary  of  twelve  hun- 
dred dollars  for  said  services,  payable  in  twelve  equal  installments,  at  the 
end  of  each  month. 

3.  In  addition   to   said   annual   salary  the   said   Comstock   shall   re- 
ceive as  compensation  for  his  services,  an  amount  equal  to  ten  per  centum 
of  the  net  profits   of  the   said  business  to  be  due  and  payable  ten  days 
after  each  semi-annual  inventory  and  statement  of  the  firm. 

4.  The  said  Comstock  shall  have  no  authority  in  the  business  out- 
side of  the  sales  department;  he  shall  have  no  interest  in  the  firm  capital 
and  property;  he  shall  have  no  interest  in  the  profits  save  as  a  measure  to 
his  compensation;  he  shall  have  no  right  to  an  accounting  and  shall  in  no 
other  respects  than  as  herein  set  forth,  have  any  connection  with  the  firm 
or  its  business. 

5.  It  is   mutually  agreed  that  if  either  party  to  this   arrangement 
wishes  to  discontinue  it  at  the  expiration  of  its  period,  and  not  to  renew 
it  for  the  like  period,  such  party  shall  give  the  other  party  formal  written 
notice  not  less  than  thirty  (30)  days  before  the  expiration  thereof;  other- 
wise this  agreement  shall  be  held  to  be  renewed  for  a  like  period  upon  the 
same  terms  and  conditions. 

Witness  the  hands  and  seals  of  the  parties  the  day  and  year  first 
above  written. 

WILKINS,  LEWIS  &  Co.  [SEAL] 

THEODORE  L.  COMSTOCK.         [SEAL] 
Attest  both  signatures, 

JAMES  E.  HILL. 

198 


PROFIT    SHARING    AGREEMENTS.  199 

Form  49.     Agreement  to  Share  Profits  for  Rent. 

LEASE. 

THIS  INDENTURE,  made  the  25th  day  of  October,  1905,  by  and 
between  Silas  H.  Furman,  of  the  City,  County  and  State  of  New  York, 
party  of  the  first  part,  lessee,  and  Duffy  &  Brown,  a  partnership  consist- 
ing of  James  V.  Duffy,  of  Newark,  N.  J.,  and  Lewis  Brown,  of  South 
Orange,  N.  J.,  parties  of  the  second  part,  lessors,  WITNESSETH : 

Whereas,  the  said  Furman  is  the  owner  of  certain  premises  and  the 
buildings  thereon,  situated  in  the  City  of  New  York,  Borough  of  the 
Bronx,  on  the  North  side  of  I56th  Street,  numbered  119-121  and  known 
as  the  Westchester  Hotel ;  and 

Whereas,  the  parties  of  the  second  part  desire  to  lease  the  said 
property  for  the  purposes  of  a  hotel  and  road  house; 

Now  Therefore,  The  said  party  of  the  first  part  does  hereby  lease, 
let  and  rent  to  the  said  parties  of  the  second  part,  all  and  singular,  the 
said  premises  together  with  the  furniture  now  in  the  buildings,  as  set 
forth  in  schedules  hereto  annexed,  for  the  period  of  three  years  from  the 
first  day  of  November  next,  upon  the  following  terms  and  conditions: 

1.  The  said  parties  of  the  second  part  shall  open  the  said  premises 
for  a  hotel  and  public  resort  within  thirty  days  from  taking  possession  of 
the  same,  and  shall  keep  the  same  open  and  in  good  order  and  condition 
for  doing  business  during  the  term  of  this  lease. 

2.  The  said  parties  of  the  second  part  shall  keep  correct  and  ac- 
curate books  showing  the  business  of  all  kinds  done  in  the  said  premises, 
and  the  profits  upon  the  same,  and  within  ten  days  from  the  expiration 
of  each  month  shall  pay  to  the  party  of  the  first  part  as  rent,  for  the  said 
premises  an  amount  equal  to  one-third  of  the  net  profits  derived  from  any 
business  of  any  kind  done  upon  or  in  connection  with  the  said  premises. 

3.  In  reckoning  the  said  profits  there  shall  be  deducted  from  the 
gross  returns  all  necessary  expenses  of  the  business,  but  no  salaries  for 
parties  of  the  second  part;  there  shall  also  be  deducted  from  the  gross 
returns  all  necessary  expenditures  required  to  keep  the  said  premises  and 
furniture  in  their  present  condition  and  repair  but  there  shall  be  no  de- 
ductions   for    amounts    expended    for    new    and    additional    furniture    and 
equipment.     Party  of  the   first  part   shall   have  the   right  to   inspect  the 
said  books  of  the  parties  of  the  second  part  at  any  convenient  time  dur- 
ing business  hours  and  to  employ  professional  accountants  to  examine  the 
same  from  time  to  time  for  the  purpose  of  ascertaining  the  amounts  due 
party  of  the  first  part  under  this  agreement. 

4.  Said  party  of  the  first  part  shall  have  no  interest  in  the  business 
to  be  conducted  by  lessees,  and  no  control  over  the  same,  nor  over  the 
property  hereby  leased,  nor  in  the  profits  save  as  a  measure  of  the  amount 
due  him  as  rent. 

5.  If  the  amount  paid  as  rent  hereunder  shall  average  four  thou- 
sand  dollars  per  annum,   the   said  lessees   may  renew   this   lease  on  like 
terms  at  the  expiration  thereof,  providing  they  give  party  of  the  first  part 
three  months  written  notice  of  such  desire. 

(The  usual  clauses  in  a  lease  of  real  property  would  be  added.) 


2OO  PARTNERSHIP   RELATIONS 

In   Witness   Whereof,   the   said   parties   have   hereunto   affixed   their 
hands  and  seals  upon  the  day  and  year  first  mentioned. 

SILAS  H.  FURMAN.         [L.  s.] 
DUFFY  &  BROWN,  [L.  s.] 

BY  JAMES  V.  DUFFY 
AND  LEWIS   BROWN. 
Witness  to  both  signatures, 

CHARLES  W.  ROLL. 


Form  50.     Agreement  to  Share  Profits  for  Loan. 

AGREEMENT  TO  SHARE  PROFITS. 


This  Indenture  made  this  25th  day  of  April,  1878,  between  William 
T.  Smith,  of  Providence,  R.  I.,  of  the  first  part,  and  Mason,  Chapin  &  Co., 
of  Providence,  R.  L,  of  the  second  part, 

WITNESSETH  :  That  in  consideration  of  the  agreements  herein 
made,  the  party  of  the  first  part  covenants  with  the  said  parties  of  the 
second  part,  that  on  the  first  day  of  May,  1879,  he  will  pay  to  them  ten 
per  centum  (10%)  of  the  net  profits  of  the  business  carried  on  during 
the  year  preceding  the  day  last  named,  under  the  name  and  style  of 
"Elmwood  Chemical  Works,  William  T.  Smith,  Treasurer,"  in  considera- 
tion of  their  loan  to  him  of  $5,ooo  or  of  their  endorsement  for  him  to 
that  amount  for  and  during  the  year  aforesaid,  and  will  also  pay  to  them 
two  per  centum  (2%)  of  said  net  profits  for  each  sum  of  $1,000  for  which 
they  may  endorse  for  him  during  said  year  in  addition  to  the  said  sum 
of  $5,000;  and  that  he  will  conduct  said  business  to  the  best  advantage 
and  keep  accurate  accounts  thereof  upon  his  books  which  shall  at  all  times 
be  open  for  inspection  by  them. 

And  that  the  said  parties  of  the  second  part  in  consideration  of  the 
foregoing  agreement  covenant  with  the  said  party  of  the  first  part  that 
they  will  loan  him  $5,000  for  the  term  of -one  year  from  the  first  day  of 
May,  1878,  or  endorse  his  note  for  that  amount,  renewable  from  time  to 
time  during  the  said  term,  and  will  also  during  said  year,  if  in  their 
judgment  required  for  the  proper  management  of  his  business  aforesaid, 
endorse  his  notes  to  an  amount  not  exceeding  $2,000  in  excess  of  the  said 
sum  of  $5,000. 

In   Witness   Whereof,   the   said   parties   hereto   set   their   hands   and 
seals  the  day  and  year  first  above  written. 

WILLIAM  T.  SMITH.  [SEAL] 

MASON,  CHAPIN  &  Co.        [SEAL] 
Executed  in  presence  of 

EDGAR  G.  ROBINSON 

Witness  to  both  signatures. 


This   contract   was   in   question    in   Boston    &    Colorado 
Smelting  Co.  v.  Smith  et  al,  13  R.  I.  27.     It  was  attempted 


PROFIT    SHARING    AGREEMENTS.  2OI 

to  hold  Messrs.  Mason,  Chapin  &  Co..  liable  as  co-partners 
with  Smith.  In  deciding  that  they  were  not  co-partners  the 
Court  said : 

"We  think  there  can  he  no  doubt  that  it  can  only  be 
considered  a  contract  for  the  loan  of  money  or  credit  in 
consideration  of  the  percentage  of  profits  in  lieu  of  in- 
terest. It  gives  the  lenders  no  voice  in  the  management 
and  no  interest  in  the  capital  of  the  business.  It  gives 
them  only  a  percentage  of  the  profits  for  a  single  year 
in  a  continuing  business.  It  is  true  that  they  have  the 
right  to  inspect  the  books  but  only  for  information.  The 
contract  calls  the  business  'his/  i.  e,,  the  borrower's,  and 
it  remains  exclusively  his,  as  much  during  the  continu- 
ance of  the  loan  as  before  or  afterwards.  The  contract, 
as  between  the  parties  to  it,  is,  therefore,  simply  a  con- 
tract for  the  loan  of  money  or  credit." 

After  a  careful  consideration  of  the  authorities  the  court 
held  that  Mason,  Chapin  &  Co.  were  not  partners  and  were  not 
liable  to  third  persons. 


CHAPTER  XXVIII. 
NOTICES. 


Form  51.     Notice  of  Copartnership. 


(a) 


NOTICE  OF  COPARTNERSHIP. 


William  F.  Fisher  and  Charles  Cavanaugh  have  this  2ist  day  of 
July,  1905,  formed  a  copartnership  under  the  firm  name  of  Fisher  & 
Cavanaugh  to  conduct  the  feed  and  grain  business  at  No.  212  Chestnut 
Street,  Buffalo,  N.  Y.,  and  will  be  pleased  to  have  the  patronage  of  all 
former  customers  and  friends  of  either  partner. 

WILLIAM   F.   FISHER, 
CHARLES    CAVANAUGH. 


(b) 


NOTICE  OF  COPARTNERSHIP. 


The  undersigned  have  formed  a  partnership  under  the  firm  name 
of  Edwin  B.  Shepard  &  Co.,  for  the  transaction  of  a  general  business  as 
bankers  and  brokers  with  offices  at  No.  59  Wall  Street,  New  York  City. 

EDWIN  B.  SHEPARD, 
ALFRED  HAWKINS, 
MATTHEW  B.  HARRIS. 


(c) 


NOTICE  OF  COPARTNERSHIP. 


The  partnership  heretofore  existing  between  Nathan  Harris,  Henry 
Dominick,  Morris  W.  Kleybolte  and  Leon  S.  Baggot  as  dealers  in  and 
importers  of  woolens  and  other  fabrics  under  the  firm  name  of  Nathan 
Harris  &  Co.,  has  this  day  been  dissolved  by  mutual  consent,  Mr.  Nathan 
Harris  retiring  from  the  firm.  A  new  copartnership  has  been  formed, 
consisting  of  the  undersigned,  who  will  assume  all  liabilities  of  the  old 
firm  and  continue  the  business  under  the  firm  name  of  Kleybolte  &  Co. 

MORRIS  W.  KLEYBOLTE, 
HENRY  DOMINICK, 
LEON  S.  BAGGOT, 
MARCUS   STEINWAY. 

202 


NOTICES.  2O3 

Form  52.     Admission  of  New  Member. 


(a)  Office  of  H.  W.  Poor  &  Co., 

33  Wall  Street, 

New  York,  November  i,  1905. 

On  this  day  Mr.  Dennie  M.  Hare  becomes  a  member  of  this  firm. 

H.  W.  POOR  &  Co. 

(b)  COPARTNERSHIP  NOTICE. 


Notice  is  hereby  given  that  Mr.  James  H.  Wilkins  is  this  day  ad- 
mitted as  a  member  of  the  firm  of  Jasper  &  Clegg,  Commission  Mer- 
chants. 

JASPER  &  CLEGG. 
213  Pearl  St.,  New  York, 
Oct.  21,  1905. 


Form  53.     Notice  of  Withdrawal.     To  Copartners. 


(a)  v 

New  York  City,  June  8,  1905. 
MR.  HARRY  EDWARDS  : 

DEAR  SIR  :  I  hereby  notify  you  that  I  this  day  withdraw  from  the 
partnership  of  Edwards  &  Brown,  and  would  suggest  that  we  take  mutual 
action  to  close  the  business  and  settle  the  affairs  of  the  partnership  with 
the  least  loss  and  delay. 

Yours  respectfully, 

LEWIS  K.  BROWN. 

(b) 

To  MESSRS.  WILLIAM  N.  WALKER  AND  ANDREW  McNsisn : 

GENTLEMEN  :  Please  take  notice  that  I  this  day  withdraw  from  the 
partnership  heretofore  existing  between  us.  I  shall  be  pleased  to  confer 
with  either  or  both  of  you  in  reference  to  the  steps  to  be  taken  to  wind 
up  the  affairs  of  the  firm. 

Yours  truly, 

FRANK  B.  DEVLIN. 
New  York  City, 

October  19th,  1905. 

(c) 

MR.  JOHN  D.  BEALS, 

No.  1135  Broadway, 

New  York  City. 

DEAR  SIR  :  Please  take  notice  that  I  hereby  formally  withdraw  from 
the  partnership  heretofore  existing  between  us,  under  the  firm  name  of 
Arthur  &  Beals,  and  shall  notify  those  dealing  with  us  and  the  general 


2O4  PARTNERSHIP   RELATIONS. 

public  of  such  withdrawal   without  delay.     I  shall  be  pleased  to  unite  in 
any  equable  procedure  for  winding  up  the  affairs  of  the  firm. 

Yours  respectfully, 

R.  M.  ARTHUR. 
Brooklyn,  N.  Y., 

March  14,  1905. 


Form  54.     Notice  of  Withdrawal.    To  Firm  Connections. 


(a)  New  York  City,  October  19,  1905. 
MR.  JOHN  WILLIAMS, 

182  Broadway,  New  York. 

DEAR  SIR: 

Kindly  take  notice  that  I  have  this  day  withdrawn  from  the  firm  of 
Walker  &  McNeish  and  am  not  responsible  for  its  obligations  contracted 
after  this  date. 

Yours  very  truly, 

FRANK  B.  DEVLIN. 

(b)  New  York  City,  June  10,  1905. 
MESSRS.  HENRY  SIMONSON  &  Co., 

575  W.  I25th  St.,  New  York. 

GENTLEMEN  : 

Please  take  notice  that  I  have  this  day  terminated  my  connection 
with  the  firm  of  Moss,  Ellsworth  &  Co.,  and  am  no  longer  a  partner  in 
its  business. 

Yours  respectfully, 

ROY  C.  HAYNE. 


Notifications  of  withdrawal  to  those  transacting  business 
with  the  firm  are  usually  sent  by  mail.  This  procedure  is  not 
always  safe.  If  an  attempt  should  be  made  to  hold  the  with- 
drawing partner  for  some  later  obligation  of  the  firm,  and 
the  party  making  the  attempt  denied  receiving  the  notice  of 
withdrawal,  it  would  be  difficult  or  impossible  to  prove  that 
the  notice  had  been  received.  If  there  is  any  clanger  of  such  a 
contingency  arising,  the  notice  should  be  delivered  personally 
or  sent  by  registered  letter. 


NOTICES.  205 

Form  55.     Notice  of  Withdrawal.     To  Public. 

WITHDRAWAL. 


(a)  To  Whom  It  May  Concern:  I  have  this  day  withdrawn  from 
the  firm  of  Walker,  McNeish  &  Co.,  and  will  not  be  liable  for  any  obliga- 
tions of  said  firm  contracted  after  this  date. 

FRANK  B.  DEVLIN. 
New  York  City, 

October  igth,  1905. 

NOTICE  OF  WITHDRAWAL. 


(b)  Notice  is  hereby  given  that  I  have  this  day  withdrawn  from 
the  firm  of  Arthur  &  Beals  and  will  not  be  responsible  for  any  obligations 
of  the  same  contracted  after  this  date. 

R.  H.  ARTHUR. 
Brooklyn,  N.  Y., 

March   14,   1905. 


In  cases  where  it  is  expedient  to  notify  the  general  public, 
notices  similar  to  the  foregoing  should  be  published  in  some 
paper  of  general  circulation  in  the  locality.  Such  notice  would 
be  sufficient  to  relieve  a  withdrawing  partner  from  further 
responsibility  to  all  of  those  who  had  had  no  previous  deal- 
ings with  the  firm. 

In  ordinary  cases,  where  the  partners  can  agree  on  some 
formal  dissolution,  the  usual  form  of  advertisement  stating 
the  fact  of  dissolution,  who  withdraws  and  who  continues,  or, 
if  the  affairs  are  to  be  wound  up,  who  is  authorized  to  collect 
money  and  pay  debts  will  be  used  as  set  forth  in  Form  56. 

Form  56.     Notice  of  Dissolution. 

(a)  NOTICE  OF  DISSOLUTION. 

The  firm  of  Williams  &  Desmond,  Dealers  in  Wooden  Ware,  is  this 
day  dissolved  and  no  one  is  authorized  to  contract  or  do  business  on  its 
behalf  other  than  such  as  is  necessary  to  wind  up  its  affairs. 

JAMES  S.  DESMOND. 
New  York  City, 
June  8,  1905- 


206  PARTNERSHIP  RELATIONS. 

(b)  NOTICE  OF  DISSOLUTION. 


The  firm  of  Edwards  &  Brown,  of  170  Broadway,  New  York  City, 
is  this  day  dissolved  by  mutual  consent.  Mr.  Harry  Edwards  will  con- 
tinue the  business  and  will  settle  all  obligations  of  the  old  firm  and  is 
authorized  to  collect  all  its  accounts. 

HARRY  EDWARDS, 
LEWIS   K.   BROWN. 
New  York,  June  8,  1905. 

(c)  RETIREMENT  OF  PARTNER. 


Notice  is  hereby  given  that  Roy  C.  Mayne  has  this  day  retired  from 
the  firm  of  Moss,  Ellsworth  &  Co.,  dealers  in  Carpets,  Rugs  and  Tapestries. 
The  firm  will  continue  to  do  business  at  its  present  location,  No.  835 
Broadway,  New  York  City,  under  the  same  firm  name. 

HENRY   T.   Moss, 
WILLIAM  ELLSWORTH, 
MINOR  V.  ARMOUR. 
June  loth,  1905. 

(d)  NOTICE  OF  DISSOLUTION  OF  PARTNERSHIP. 


The  copartnership  heretofore  existing  between  James  D.  Cornish 
and  Henry  McClelland  under  the  firm  name  of  Cornish  and  McClelland 
for  the  purpose  of  practicing  medicine  in  the  City  of  Newburgh,  is  this 
day  dissolved  by  mutual  consent. 

Dr.  James  D.  Cornish  will  continue  to  occupy  the  former  offices  in 
his  residence  and  is  authorized  to  collect  all  debts  due  the  firm  and  will 
discharge  all  obligations  thereof. 

JAMES  D.   CORNISH,  M.  D. 
HENRY  MCCLELLAND,  M.  D. 

Dated  March  8,  1905. 


(e)          NOTICE  OF  DISSOLUTION  OF  COPARTNERSHIP. 


The  firm  of  Milward,  Lynch  &  Co.,  dealers  in  Coffees,  Spice,  etc., 
is  this  day  dissolved.  Ernest  Milward,  as  liquidating  partner,  will  settle 
all  obligations  of  the  late  firm  and  is  authorized  to  collect  all  claims.  He 
will  be  found  at  its  office,  No.  215  Beaver  Street,  during  the  month  of 
November,  and  thereafter  with  the  new  firm  of  Parker  &  Milward,  No. 
145  Wall  St.,  New  York  City. 

FRANCES  MILWARD, 
THEODORE  V.   LYNCH, 
THOMAS  SINCLAIR. 
Dated  October  i6th,  1905. 


NOTICES.  2O7 

PARTNERSHIP  NOTICE. 


(f)     The  firm  of  Batten,  Neumann  &  Co.  is  this  day  dissolved  by 
mutual  consent. 

J.  Z.  BATTEN, 
CHAS.  NEUMANN. 

New  York,   November  2,   1905. 

The  business  of  the  above  firm  will  be  continued  by  the  undersigned 
at  374-378  Broadway,  New  York,  under  the  firm  name  of  J.  Z.  Batten  &  Co. 

J.  Z.  BATTEN, 
C.  K.  ZIMMERMAN. 


INDEX. 

[References  are  to  pages.] 
[For  Titles  of  Forms,  see  Table  of  Contents.] 


Abandonment  by  Partner,  116,  117. 

Absence  of  Partner,  117. 

Accounting,  Right  to,  17,  99,  100,  127,  128. 

Forms,  163,  168,  169. 
Accounts,  Books  of,  99,  100,  168. 
Access  to,  99. 
Failure    to   keep,    100. 
Active  Partner,  57,  58,  60. 
Advances  by  Partners,  63,  64,  95,  96,  177. 
Advertising  of  Partnership.     (See  Notice.) 

Forms,  202,  203,  207. 
Agency  of  Partner,  15,  16,  139. 

Mutual,   74,  75,  80-85,   139. 
Agents  and  Employees,  Right  to  Appoint,  73,  169,  170. 

Sharing  Profits  not  Partners,  34-38. 
Agreement  of  Partnership.     (See  Articles.) 

Forms,   159-192. 
For  Sharing  Profits,   34-39. 
Agreements  of  Partners. 

Forms,  I93-IQ7- 
For  Continuance,  196,  197. 
For  Dissolution,   194,  195. 
For   Incorporation,    152,   195,   196. 
Taking  in  New  Partner,  193. 
Aliens,  53. 

Appointment  of  Receiver,  125-127,  132. 
Arbitration,  76. 

Form,  176. 

Articles  of  Partnership,  13-17,  43-46,  50-53,  75,  76,  82-84,  93-96,  115,  n6, 

159-192.     (See  also  Contracts  of  Partner- 
ship.) 
209 


2IO  INDEX. 

[References  are  to  pages.] 

Articles  of  Partnership. — Continued. 

Forms,   159-192. 

Breach  of,  75,  76,  83,   106-108,   115,   116. 
Contracting    Business, 

Form,   181-183. 

Limitations  in,  75,  76,  82-84,  93,  94,  167,  168. 
Manufacturing, 

Form,    183-187. 
Married  Woman's, 

Form,   190-192. 
Mercantile, 

Form,   180,   181. 
Professional, 

Form,   1 88,   189. 
Simple,  Articles, 

Form,   179. 
Articles  of  Partnership,  Clauses,    159-192. 

Additional  Investments,   176. 

Amendment  of  Articles,    177,    178. 

Arbitration   Clause,   176. 

Books  to  be  kept,  168. 

Death  of  Partner,  172-174. 

Dissolution  by  Notice,  174,  175. 

Division   of  Profits   and   Losses,    163,    164. 

Dormant  and  Silent  Partners,   166. 

Employees,   169,   170. 

Engaging  in  Other  Business,  164,  165. 

Financial   Management,   169. 

Firm  Name,   160,   175. 

Guaranty  of  Profits  to  Partners,  177. 

Insolvency   of   Partner,    172. 

Investment,   161. 

Loans  from  Partners,  177. 

Losses,  172. 

Majority  Rule,   168. 

Managing   Partner,    167. 

Option  on  Partner's  Interest,  171,  172,  174. 

Partnership  at  Will,  162,  163. 

Payment  of  Private  Debts,  164. 

Period,   162. 

Periodical  Accounting,  169. 

Place,  160. 


INDEX.  211 

[References  are  to  pages.] 

Articles  of  Partnership. — Continued. 

Power  of  Expulsion,  172. 
Preamble — Date — Parties,    159,    160. 
Premium  for  Admission,  177. 
Purposes,  161. 

Restrictions  on  Partners'  Powers,  167,  168. 
Retirement  of  Partner,  171. 
Salaries,  164. 

Signature  to  Commercial  Paper,  167. 
Termination,  165. 
Time  of  Partners,  166. 
Winding  up  Partnership  Affairs,   175. 
Assets,  62-71. 

Division  of,  137,  138. 
Marshalling,  136,   137. 
Sale  of,   133-   135. 
Assignment,  85. 

for  Creditors,  87-89. 
Associations,  Partnership,  17,  27,  28. 
not  for  Profit,  26,  27. 
not  Partnerships,  17,  18,  26-33. 
Attachments  Against  Partnership,  70,  71. 
Attorneys,  Partnership  of,  131. 

Form  of  Articles,  188,  189. 

B. 

Bad  Faith  of  Partners,  118,  119. 
Bank  Deposit, 

Clauses  relating  to,  169. 
Bankruptcy,  87-89,  110-112,  172. 

Dissolution  by,   110-112. 

Bills  and  Notes.     (See  Promissory  Notes.) 
Books,  Partnership,  99,  100,  168. 

Inspection  of,  99,  100. 
Borrowing,  69,  83-85. 

Trading  Partnerships,  72,  73,  83,  84. 
Non-trading  Partnerships,  73,  84. 
Breach  of  Articles,  75,  76,  83,  106-108,  115,  116. 
Business,  Partnership, 

Alteration  of,  74. 
Closing  up,  129-138,  175. 


212  INDEX. 

[References  are  to  pages.] 

Business,  Partnership. — Continued. 

Must  be  Lawful,  15,  16. 

Scope  of,  72,  73,  81,  82. 
Buying  Out  Partner,  129. 
By- Laws,  154,  155. 

C. 

Capital,  Partnership,  15,  16. 

What  is,  15,  16,  62-71. 
Change  in  Firm,  65,  66,  78,  79. 

Notice   of,  203-207. 
Charter,  153,  154. 

Chattel  Mortgage,  Power  of  Partner  to  Make,  68,  69. 
Classification  of  Partnerships,  19,  25. 
Closing  up  Business,  129-138. 

Forms,  175. 
Company.     (See  Corporation.) 

Joint  Stock,  17,  24,  25,  29,  30. 
Compensation.     (See  Salaries.) 
Extra,  94,  95. 

For  Closing  Business,   130-132. 
Competent  Parties,  50-56. 
Continuing  Partnership,  102-104,  *96,  197. 
Contract  Limitations  on  Partner's  Powers,  75,  76,  82-84,  93,  94,  167,  168. 

Notice  of,  83,  84. 

Contracts  for  Sharing  Profits,  34-39,  92-99. 

Contracts  of  Partnership,  13-17,  43-46,  50-53,  75,  76,  82-84,  93-96,  115, 

116.     (See    also    Articles    of    Partner- 
ship.) 

Forms,    159-192. 
Implied,  45,  46. 
of  Alien,  53. 

Corporations,  55,  56. 
Insane  Persons,  53,  54,  112-114. 
Married  Women,  52,  53. 
Minors,  50-52. 
Verbal,  44,  45. 
Written,  43. 

Control  of  Corporations,  145,  146. 
Conveyances  of  Firm,  69,  70,  81,  85-87. 
Co-Ownership,  18,  32,  33. 


INDEX.  213 

[References  are  to  pages.] 

Corporate  System,  139-142. 

Corporation,  18,  30-32,  55,  56.     (Part  V,  139-158.) 

Agreement  for,  195,  196. 

By-law  Provisions,  154,  155. 

Charter  Provisions,  153,   154. 

Comparison  with  Partnership,  30-32,  139-144. 

Conduct    of    Business,    139,    142,    157,    158. 

Control  of,  145,  146. 

Details,  152. 

Issuance  of  Stock,   156. 

Liability  of  Stockholders,  140. 

Minority  Interests,  145-150. 

Name,  153. 

Organization   Meetings,   155,   156. 

Restrictions  on  Sale  of  Stock,  150,  151. 

Transfer   of   Property   to,    156. 
Cumulative  Voting,  148,  149. 

D. 

Damages  for  Breach  of  Articles,  106,  1,07. 
Death  of  Partner,  Clauses  Relating  to,  172-174. 
Effect  of,  112-114,  129-131. 
Provision  for,   113,  172-174. 
Debts,  Partners',  135-137,  164. 
Partnership, 

Liability  for,  16,  58,  59,  79,  84,  89-91,  105,  140. 
Paying,    135,    136,    164. 
Deed,  69,  70,  81,  85-87. 
Definition  of  Partnership,  13,  16. 
Deposit,  Bank, 

Form,   169. 

Dissensions,  102,  115-122. 
Dissolution,  78,  79,  123,  124.     (Part  IV,  101-138.) 

Forms,  165,  194,  195,  205-207. 
By  Abandonment,  116,  117. 
Agreement,   101-104,   165. 
Bad  Faith,  118,  119. 
Bankruptcy,  87-89,   110-112,   172. 
Breach  of  Articles,  75,  76,  83,  106-108,  115,   116. 
Death  or  Insanity,  112-114. 
Disagreement,  102,   115-122. 


214  INDEX. 

[References  are  to  pages.] 

Dissolution. — Continued. 

By  Dissensiors,  IC2,  115-122. 

Equitable    Proceedings,    123,    124. 

Exclusion,   117,   118. 

Failure  or  Impossibility,   114. 

Fraud  in  Inception,   120,   121. 

Misconduct,   119,  120. 

Notice,   105-108,   174,   175. 

Forms,  205-207. 

Sale  of  Partner's  Interest,  108-110. 
Enforced,   101,   105-114. 
Existing    Contracts,    132. 
Marshalling   Assets,    136,    137. 
Payment  of  Debts,  135,  136. 
Phases  of,  129-138. 
Receivership,    125-127. 

Distinctive  Features  of  Partnership,  16,  17,  30,  31. 
Distribution  of  Surplus,  137,  138. 
Dividing  Assets,  137,  138. 

Division  of  Profits,  16,  62,  63,  92-100,  137,  138,  163,  164. 
Doctrine  of  Mutual  Agency,  15,  16,  74,  75,  80-85,  *39- 
Dormant  Partner,  59,  60,  79,  91,  108,  166. 
Duration  of  Partnership,  102,  103,  105-107,  162. 
Duty  of  Good  Faith,  76,  77. 


E. 


Employee,  Right  to  Appoint,  73,  169,  170. 

Enforced  Dissolution,  101,  105-114. 

Engaging  in  Other  Business,  77,  78,  164,  165,  166. 

Equality  of  Partners  in  Gains  and  Losses,  16,  62,  63,  92,  93,  138,  163. 

Equitable  Remedies,  123-128. 

Essential  Features  of  Partnership,  13-16. 

Exclusion  of  Partner,  117,  118. 

Execution  Against  Partnership  Property,  70,  71. 

Executor  of  Partner,  130. 

Existing  Contracts,  132. 

Expenses  of  Incorporation,  142,  143. 

Expulsion  of  Partner,  118,  120,  172. 


INDEX.  215 

[References  are  to  pages.] 
F. 


Features,  Distinctive,  of  Partnership,  16,   17,  30,  31. 

Essential,  of  Partnership,  13-16. 
Firm,  As  a  Partner,  54,  55. 

Formation  of,  43-49. 

Notice  of,  202,  203. 

Property  of,  15,  16,  62-71,  156. 
Firm  Name,  47-49,  65-67,  I33-J35,  160,  175. 
Firm  Signature,  49,  167. 
Forms  (Part  VI,  159-207). 
Fraud  of  Partners,  120,  121. 
Frauds,  Statute  of,  44,  45. 


G. 


General  Partner,  57,  58. 
General  Partnerships,  19,  20. 
Good  Faith,  17,  97-99. 

Duty  of,  76,  77. 

Failure  in,  118,  119. 
Good- will,  65-67,  133-135,  174- 
Gross  Returns,  Sharing  not  Partnership,  33,  39. 

H. 

Holding  Out  as  Partner.     (See  Nominal  Partner.) 

I. 

Implied  Partnership,  45,  46. 

Impossibility  of  Enterprise,  114. 

Incorporation,  104,  130,  (Part  V,  130,  152-158,  I95-) 

Agreement  for,  152,  195. 

Assumed,  46. 

Details  of,  152. 

Expenses  of,  142,  143. 

Procedure,   152-158. 
Indorsement,  Limitations  on,  167. 
Infant,  Capacity  for  Partnership,  50-52. 
Injunction,  124,  125. 

Grounds  for,  125. 


2l6  INDEX. 

[References  are  to  pages.] 

Insane  Persons  as  Partners,  53,  54,  112-114. 
Insanity,  Effect  of  on  Partnership,  53,  54,  113,  114. 
Insolvency,  87-89,  110-112,  172.     (See  Bankruptcy.) 
Inspection  of  Firm  Books,  99,  100. 
Insurance  of  Partners'  Lives,  173. 
Intention  as  Test  of  Partnership,  14,  15,  39. 
Interest  on  Investments,  63,  95-97. 
Investment,  Partnership,  62-64,  137,  138,  161,  176. 
Interest  on,  63,  95-97. 

J. 

Joint  Stock  Companies,  17,  24,  25. 

Statutory,  29,  30. 
Joint  Tenancy,  18,  32,  33. 


Land.     (See  Real  Estate.) 

Law  Firms,  84,  131,  188,  189. 

Law,  National  Bankrupt,  in,  112. 

Laws  Regulating  Partnership,  46,  47,  57,  58. 

Legal  Intention,  14,  15,  39. 

Liability  of  Partners,  16,  58,  59,  79,  84,  89-91,  105,  113,  140. 

General  Partners,  58. 

Special  Partners,  58,  59. 
to  Third  Persons,  89-91. 
Liability  of  Stockholders,  140. 
Lien,  Partner's,  136,  137. 
Limitations  in  Articles,  75,  76,  82-84,  93,  94,  167,  168. 

Notice  of,  75,  83. 

Limited  Partnership,  23,  47,  57-59,  83. 

Limits  of  Powers,  75,  81,  82.     (See  Powers  of  Partners.) 
Liquidating  Partnership,  129-133. 
Loan  for  Share  of  Profits,  36-38,  200,  201. 
Losses,  Sharing,  16,  62,  63,  92,  93,  137,  138,  163,  164,  172. 

M. 

Majority,  Power  of,  73,  74,  146. 

Rule,  73,  74,  168. 
Managing  Partner,  22,  167,  169. 
Married  Women  as  Partners,  52,  53,  190. 


INDEX.  217 

[References  are  to  pages.] 


Marshalling  Assets,  136,  137. 

Mining  Partnerships,  22. 

Minor,  Capacity  to  be  a  Partner,  50-52. 

Minority  Interests,  Protection  of,  146-150. 

Misconduct  of  Partner,  119,  120. 

Mutual  Agency  of  Partners,  15,  16,  74,  75,  80-85,  139. 


N. 


Name,  Corporate,  153. 

Firm,  47,49,  65-67,   133-135,  160,  175- 
Trade,  48,  133-135,  i/5,  187,  188. 
National  Bankrupt  Law,  in,  112. 
Nature  of  Partnership  Interests,  67,  68. 
Negotiable  Instruments,  83-85,  167. 
Net  Profits,  92. 
Nominal  Partner,  60,  61. 
Non-Trading  Partnership,  19,  20,  73,  84. 
Notice,  of  Copartnership, 

Forms,  202,  203,  207. 
Dissolution,  79,  105-108,  174,  175. 
Forms,  205-207. 
Restrictions,  75,  83,  84. 
Withdrawal,  78,  79,  105-108. 

Forms,  203-207. 


O. 


Organization  of  Corporation,  155,  156. 
Ostensible  Partner,  60,  61. 


P. 


Parties,  50-56. 

Clauses  relating  to,  159,  160. 
Aliens,  53. 

Corporations,  55,  56. 
Insane  Persons,  53,  54. 
Married  Women,  52,  53. 
Minors,  50-52. 
Other  Firms,  54,  55. 


2l8  INDEX. 

[References  are  to  pages.] 

Partner.     (See    Dormant,   General,    Liquidating,   Managing,    Nominal, 

Special  and  Surviving  Partner.) 
Partners,  Agreements  of,  193-197. 

For  Continuance,   196,   197. 
"      Dissolution,  194,  195. 
"      Incorporation,  195,  196. 
"      Taking  in  New  Partner,   193. 
Debts,  135-137,  164- 
Exclusion  of,  117,  118. 
Interest  of,  70,  108-110. 

Liability  of,  16,  58,  59,  79,  84,  89-91,  105,  113,  140. 
Misconduct  of,  119,  120. 
Personal  Qualifications,  40-42. 
Powers  of,  15,  16,  68,  69,  72-75,  81-85,  167,  168. 
Relations  of,   17,  40,  72-79. 
Retirement  of,  78,  79,   105-108,   129,   171,  205. 
Salaries  of,  94,  95,  163,  164. 
Partnership.     (See  Articles  of.) 

Agency,  15,  16,  74,  75,  139,  MO. 

Associations  at  Will,  17,  27,  28. 

at  Will,  102,  105,  162,  163. 

Books,  99,  100,  1 68. 

Capital,  15,  16,  62-71. 

Classification,  19,  20. 

Comparison  with   Corporation,  30-32,   139-144. 

Debts,  I35-I37. 

Dissolution  of,  78,  79,  101-138. 

Forms,  165,  194,  195,  205-207. 
Features,  Distinctive,  16,  17,  30,  31. 

Essential,  13-16. 
Formation  of,  43-49,  202,  203. 

Notice  of,  202,  203. 
General,  19,  20. 
Implied,  45,  46. 

Investment,  62-64,  95-97,   137,   138,   161,   176. 
Liability,  16,  58,  59,  79,  84,  89-91,  105,  113,  140. 
Limited,  23,  47,  57-59,  83. 
Mining,  22. 

Name,  47-49,  65-67,  133-1 35,  160,   175. 
Necessary   Elements,    13-16. 
Non-trading,  19,  20,  73,  84. 
Notes,  83-85,  167. 


INDEX.  219 

[References  are  to  pages.] 

Partnership. — Continued. 

Parties  to,  50-56,  159,  160. 

Period,  102,  103,  105-107,  162. 

Profits  and  Losses,  16,  62,  63,  92,  93,  137,  138,  163,  164, 

172. 

Proof  of,  90,  91. 

Property,   15,   16,  62-71,  85-87,   156. 
Purposes,  161. 
Real   Estate,  69-70,  85-87. 
Signature,  49,  167. 
Special,  20,  21. 

Termination.     (See   Dissolution.) 
Trading,  19,  20,  72,  73,  83,  84. 
Payment  of  Firm  Debts,  135,  136. 
Personal  Property  of  Partnership,  85. 
Personal  Qualifications  of  Partners,  40-42. 
Powers  of  Partners,  15,  16,  68,  69,  72-75,  81-85,  167,  168. 
Priorities.     (See  Marshalling  Assets.) 
Procedure  for  Incorporation,  152-158. 
Professional  Partnership,  20,  73,  84,  131,  188,  189. 
Profits,  As  Compensation  for  Loan,  18,  36-38,  200,  201. 

Services,  18,  34,  35,  198. 
Use  of  Property,  18,  35,  36,  199,  200. 
Associations  not  for,  17,  26,  27. 
Contracts  for  Sharing,  38,  39,  92-99,  198-201. 
Net,  92. 
Secret,  97-99. 

Shared  equally,   16,  62,  63,  92,  93,   138,   163. 
Promissory  Notes,  83-85,  167. 
Property.     (See  Capital.) 

Partnership,  15,  16,  62-71,  156. 
Personal,  85. 
Real,  69,  70,  85-87. 
Transfer  to  Corporation,  140,  156. 
Protection  of  Minority  Interests,  146-150. 
Purchase  and  Sale,  Partnership,  of  Personal   Property,  85. 

Real  Estate,  85-87. 

R. 

Real  Estate,  Partnership,  69,  70,  85-87. 
Receiver,  125-127,  132. 


220  INDEX. 

[References  are  to  pages.] 

Recision  for  Fraud,  120,  121. 
Relations  of  Partners,  17,  40,  57-61,  72-79. 
Relations  to  Third  Persons,  80-91. 
Remedies,  Equitable,  123-128. 
Renewal  of  Articles,  196. 

Form,  196,  197. 
Retirement  of  Partner,  78,  79,  105-108,  129,  171,  205. 

Clauses   relating  to,   171,  203,  204,  206. 

Notice  of,  79. 

Right  to  Accounting,  17,  99,  100,  127,  128. 
Right  to  Engage  in  Other  Businesses,  77,  78,  164,  165. 


Salaries  to  Partners,  94,  95,  163,  164. 
Sale,  of  Assets,  133-135. 

Entire  Assets,  68,  69. 

Partner's  Interest,  108-110. 

Personal  Property,  85. 

Real  Property,  85-87. 
Scope  of  Business,  72,  73,  81,  82. 
Secret   Partner.     (See   Dormant   Partner.) 
Profits,  97-99. 

Restrictions.     (See  Limitations  in  Articles.) 
Services  for  Share  of  Profits,  18,  34,  35,  198. 

Clauses  relating  to,  198. 

Sharing  Profits  and  Losses,  16,  62,  63,  92-100,  163. 
Sharing  Gross  Returns,  39. 
Signature  of  Firm,  49,  167. 

Form,  167. 

Silent  Partner,  59,  60,  79,  91,  108,  166. 
Single  Enterprise,  20. 
Special  Partner,  23,  57-59. 
Special  Partnership,  20,  21. 
Statute  of  Frauds,  44,  45. 

Statutes  Regulating  Partnerships,  27,  28,  46,  47,  57,  58. 
Stock  in  Corporation,  141,  150,  151,  156,  157. 
Surviving  Partner,  129-133. 

T. 

Taxes  on  Corporations,  143. 
Tenancy  in  Common,  18. 


INDEX.  221 

[References  are  to  pages.] 

Tests  of  Partnership,  13-15,  39. 

Trade  Marks,  65-67,  135. 

Trade  Names,  48,  133-135,  175,  187,  188. 

Trading  Partnerships,  19,  20,  72,  73,  83,  84. 

Trusts,  Voting,  149,  150. 

U. 

Use  of  Property  for  Shares  of  Profits,  35,  36. 

Clauses  relating  to,  199. 

V. 

Verbal  Partnership  Contract,  14,  44,  45. 
Voting,  Cumulative,  148,  149. 
Trusts,  149,  150. 

W. 

Winding  up  Partnership,  129-138,  175. 

Withdrawal  of  Partner,  78,  79,  105-108,  129,  204,  205. 

Forms,  171,  203,  204,  206. 
Woman,  Married,  as  Partner,  52,  53. 
Written  Partnership  Contract,  14,  43. 
Forms,  159-192. 


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